Market wrap: US GDP hurt the dollar - Westpac

Analysts at Westpac noted that the final session in the US came with modest downside surprises in US GDP and wages data hurt the US dollar and interest rates.

Key Quotes:

"CAD outperformed on firm Canada GDP data while the North Korean missile test supported the safe haven Japanese yen.

 Interest rates: US 10yr treasury yields pushed up to 2.33% in London but then rolled over with the US data to 2.29% while 2yr yields slipped from 1.37% to 1.35%. But market pricing for a fed funds rate hike before December ticked up slightly to almost 50%.

Currencies: The US dollar fell against all G10 currencies except the Swiss franc, where market talk was about M&A flows. EUR/USD rose from 1.1680 to 1.1760, largely reversing Thursday’s fall. USD/JPY fell 0.5% over the day to around 110.60, most of the decline coming after the US GDP and employment cost data, though the latest North Korean ICBM test also appeared to have some market impact. GBP/USD rose 0.5% to 1.3140.

AUD/USD fell as far as 0.7937 in London trade, bounced above 0.7990 on the US data, flickered above 0.8000 briefly then steadied just below the figure. NZD/USD bounced off a low of 0.7461 in London to trade around to 0.7515 into the weekend. This left AUD/NZD at the low end of a rough 1.0620-1.0670 range.

Fellow dollar bloc member the Canadian dollar also firmed, with gains accelerating from USD/CAD1.2540 to 1.2420 after May GDP easily beat consensus.

Economic Wrap

Eurozone: Germany preliminary CPI rose 0.4% m/m, 1.7% y/y, faster than expected.

US: Q2 GDP (advance) was effectively a rounding error from consensus, 2.6% q/q annualized versus 2.7% median forecast, though Q1 was nudged down 0.2ppt to 1.2% to reinforce the modest pace of growth in H1 2017. Personal consumption rose at a 2.8% pace while business investment jumped 5.2%. Inflation pressures were muted, with the PCE deflator 1.6%.

The Q2 employment cost index rose a slightly less than expected 0.5%, trimming the yearly rate to 2.4%yr.

Canadian GDP jumped 0.6% m/m in May, well above consensus for 0.2%. This took annual growth to an eye-catching 4.6%, though this is flattered by base effects, as May 2016 saw a -0.6% contraction due to fires disrupting oil production."