Analysts at Westpac explained that US yields headed lower despite the various Fed comments from Dudley, Williams and Fischer over recent days displaying hawkish tones.

Key Quotes:

"The sharp fall in oil prices may have been a factor, implying inflation will remain low. Ten year treasury yields fell from 1.59% to 1.54%, while the 2yr fell from 0.77% to 0.74%. Market pricing of the Fed funds rate firmed slightly, however, a rate hike 100% priced by August 2017. (Westpac’s forecast remains for a Dec 2016 move).

The fall in US yields weakened the US dollar on most pairs. EUR/USD rose from 1.1280 to 1.1320/30. USD/JPY’s rally failed around 100.90, slipping back to 100.30. AUD/USD ratcheted up from 0.7590 to as high as 0.7644.

The AUD/USD high came very early in Sydney trade Tuesday, in sympathy with NZD/USD, as the initial response to RBNZ governor Wheeler’s speech was a bounce from 0.7275 to around 0.7320. The kiwi then eased back below 0.7300 but was still slightly stronger an hour after the speech was released. Wheeler said NZD was too high but also that he didn’t see the need for rapid easing, as this could further inflame the property market. He said that incoming data would determine whether the 35 basis points of easing implied by the bank’s projections was realistic – it could be more or less. AUD/NZD dropped a net 20 pips to 1.0470 on the speech.

Event risk: Today we see Singapore Jul CPI and Taiwan July IP. The advance Aug readings on manufacturing and services sector sentiment in France, Germany and the Eurozone are due in the London morning, with modest potential to impact on EUR. In the US, the Richmond Fed survey of regional manufacturing sentiment is seen easing slightly to +6 in Aug, while Jul new home sales are seen at -2% after +3.5% in Jun. Australia’s calendar remains light."