North American FX Open - Usd briefly dips below 200 day m/a, first time since election day

The Dollar weakness continued apace in overnight trading, with the DXY dropping below the 200 day m/a for the first time since the day of the US election on November 5th. The main beneficiary as been the Euro, as the market reacts to yesterday's news that the parties hoping to form the next German government have agreed to create a Eur 500bln infrastructure fund, as well as an overhaul of borrowing rules, in order to revamp the military and revive growth in Europe's largest economy.

It is worth noting, that an important element of the German fiscal plan is that new coalition is trying to get it through the current parliament where they have the votes (2/3 majority, SPD, CDU/CSU and Greens). New parliament won't have the votes without the so-called extreme parties (Left and Afd). German 10 year yields have surged on the news, with its largest rise since June 2022, up to 2.73% at one point.

Eur/Usd has extended recent gains to 1.0722, bang on the 200 day m/a.

Confusion over tariffs remains at heightened levels after US Commerce Secretary Howard Lutnick stated yesterday that Trump could announce an end of tariffs on Mexico and Canada as soon as today. But in his speech to congress, Trump played down the potential economic fallout from a trade war he ignited this week, including 25% tariffs on Mexico and Canada, and an additional 10% on Chinese imports. Trump added that "Tariffs are about making America rich again and making America great again," he said." And it's happening. And it will happen rather quickly. There'll be a little disturbance, but we're okay with that. It won't be much." Trump added that reciprocal tariffs tailored to US trading partners would "kick in" on April 2nd.

Overnight, Australian Q4 GDP exactly matched expectations rising by an impressive 0.6% q/q and 1.3% y/y. It was the best quarter of growth since Q4 2022.

The RBA continued to pushback against the idea of further rate cuts in the short-term, with deputy governor Hauser insisting that they do not share the markets view that a sequence of cuts are on the horizon. Hauser added that progress towards the CPI target has been good, but it was too soon to declare victory over inflation. Hauser also admitted that the rate cut decision was not 50-50, but it was not 90-10 either.

Meanwhile, EZ PPI came in faster than expected at 0.8% m/m in January and 1.8% y/y.

US data today includes, the ADP private payroll report, factory orders and the ISM services report. We also see the release of the Fed's latest Beige Book.

Central bank speakers include the Bank of England's Bailey, Pill, Green and Taylor at the Treasury Select Committee.

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