Market wrap: Powell would raise his growth forecasts sends DXY well BID

Analysts at Westpac explained that US bond yields and the USD rose, while equities and commodities fell in response to Fed Chairman Powell's testimony to Congress, which included Powell saying he would raise his growth forecasts.

Key Quotes:

"AUD/USD fell from 0.7840 to 0.7795. Today's data calendar includes the China Feb manufacturing survey, Eurozone Feb CPI, India Q4 GDP and revised US Q4 GDP.

Fed Chairman Powell’s debut semi-annual Congressional testimony struck consistency with Yellen’s final FOMC statement. He repeated the “gradual rate rise” mantra, but with a slight hawkish bias, noting fiscal expansion and potential wage growth: "FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis. While many factors shape the economic outlook, some of the headwinds the US economy faced in previous years have turned into tailwinds.”

In the Q&A, Powell said the economy is stronger than has been seen in a “long time” and that in part due to looser fiscal policy, he would raise his growth forecasts in the quarterly projections to be published at the March FOMC meeting.

US 10yr treasury yields jumped from 2.86% to 2.92% in response to Powell’s testimony. 2yr yields rose from 2.22% to 2.27%, while Fed fund futures yields jumped as much as 5bp for 2019, now pricing a total of 4.5 hikes priced by end-2019.

The US dollar rose against all G10 currencies though the haven Swiss franc largely kept pace. EUR/USD fell from 1.2340 to 1.2230/40, hurt by both Powell’s testimony as well as the softer German CPI data. German Feb inflation rose 1.2%yr (expected 1.3%, from 1.4%). GBP/USD slipped under 1.3900 but then trimmed losses to -0.3% on the day. CAD followed crude oil prices lower in NY trade.

USD/JPY rose from under 107.00 to a high of 107.68 then steadied around 107.40. AUD/USD fell from 0.7840 to lows around 0.7795. NZD/USD fell from 0.7280 to 0.7234. AUD/NZD eked a slightly higher 1.0760-1.0785 sideways range.

Turning to the busy US data calendar, Jan durable goods orders disappointed. The series is volatile, but the miss on core measures (ex-transport and defence -0.2%m/m vs expected +0.5%m/m) is a negative for Q1 GDP growth. US house prices rose 6.3%yr in Dec and there were two large upside surprises in Feb sentiment surveys – the Richmond Fed manufacturing report which bounced from +14 to a very strong +28 and consumer confidence (Conference Board) which leapt to 130.8, a high since Nov 2000."