Changes to FOMC member’s projections for GDP and the fed funds rate have had a significant impact on trading in US markets in the later stages of last night’s session, sending upward momentum toward this morning’s Asia Pacific trading. While the decision not to raise interest rates this time was as expected, the decision to cut its GDP forecast for the second time in a row suggested to the markets that US economic growth is still less than expected. This cut pretty much rules out an interest rate hike in July and makes September unlikely unless the economy turns around in a big way soon. Member projections for interest rates also came down. The chart below shows that all FOMC members are expecting a rate of 1.00% or less. Back in December most members were looking for a 1.25% to 1.75% rate at the end of this year. The main group between 0.50% and 1.00% suggests most members are still looking for 1-3 rate hikes this year which suggests a liftoff between September and December. Although the Fed statement and press conference comments from Chair Yellen indicated the Fed remains flexible on interest rate liftoff, market action saw stocks and gold rally while USD retreated indicating the street has taken this news as moderately dovish. That being said, it’s likely not dovish enough to propel stocks out of their longer trading range either. Following the dovish signals from the Fed’s statement offered last night, this morning’s surprise report out on NZ March quarter’s GDP suggests that the game of ‘competitive easing’ amongst key central banks is not about to end just yet. The poor figures (0.2% versus expectations of 0.6% Q-o-Q ) cements the case for another rate cut late next month. The Kiwi was hit hard this morning, dropping through 0.70 to trade 0.6903 earlier. Crude oil rallied early but has been trimming its gains into the afternoon as traders take profits against another big drop in US inventories. CAD has been running in the pack with WTI and Brent trading near flat on the day.
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