AUD and NZD rally as dovish Fed boosts stocks and gold, sinks USD
Changes to FOMC member projections for GDP and the fed funds rate have had a significant impact on trading in US markets in the later stages of today’s session, sending upward momentum toward today’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 indicted the Fed remains flexible on interest rate liftoff. market action which saw stocks and gold rally while USD retreated indicates 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.
The USD drop has sparked a number of rallies in currency markets. AUD and NZD have been leading the charge ahead of today’s New Zealand GDP report. NOK and SEK are also among the stronger performers in the last few hours even with Norges Bank expected to cut interest rates tomorrow. CHF and JPY have been near the bottom of the group gaining on USD but little else ahead of SNB and BoJ meetings tomorrow.
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.
There have been no major announcements following the US market close today.
Significant announcements released overnight include:
US FOMC interest rate 0.25% no change as expected
US FOMC member projections Fed funds rate all members now below 1.00% for year end. 15 of 17 members between 0.50% and 1.00%, so still looking at 2-3 increases this year.
GDP forecast cut to 1.8%-2.0% from 2.3%-2.7%
US crude oil inventories (2.6 mmbbls) vs street (1.1 mbbls)
UK jobless claims (6.5K) vs street (13.5K)
UK 3M employment change 114K vs street 190K
UK average weekly earnings 2.7% vs street 2.1%
UK unemployment rate 5.5% as expected
UK Bank of England minutes 9-0 in favour on maintaining interest rate and QE target
Upcoming significant announcements include:
8:45 am AEST NZ GDP street 3.1%
8:30 am BST Switzerland interest rate (0.75%) no change expected
9:00 am BST Norway interest rate 0.25% cut to 1.00% widely expected
9:30 am BST UK retail sales street 4.6%
9:30 am BST UK retail ex auto and fuel street 4.3%
8:30 am EDT US consumer prices street 0.1%
8:30 am EDT US core CPI street 1.8%
8:30 am EDT US jobless claims street 277K
10:00 am EDT US Philadelphia Fed street 8.0
10:00 am EDT US leading index street 0.4%
10:30 am EDT US natural gas street 93 BCF
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