Fed Updates:
As you were.
With the Federal Reserve decision this morning largely a non event, stock indices and the USD both saw some buy the rumour sell the news type price action. Think of it as markets trying to position for the possible big news spike if there were any surprises, but then snapping back into line after an as you were type of release.
The Fed was happy to take a wait and see approach on global economic issues (read China) and see how this theme will affect domestic growth outlooks.
They flagged slowing economic growth concerns, highlighting that it had slowed since their last meeting in December when we got lift-off on a new rate raising cycle. The fact that economic growth was subdued meant that inflation stayed subdued and there was no way that they were going to risk making a consecutive move in this type of environment.
A dovish tone, but nothing unexpected and markets acted accordingly. Good central bank management!
Steady in Gondor: RBNZ:
In Wellington rather than Gondor, the Reserve Bank of New Zealand also kept interest rates on hold this morning. However, this decision was a little less cut and dry, especially following inflation data last week.
There was a definite change in tone from the RBNZ, with today’s statement also sounding a lot more dovish from the ‘end of easing cycle’ type of rhetoric we saw out of Wellington the last time the central bank met a month ago.
“Some further policy easing may be required over the coming year to ensure that future average inflation settles near the middle of the target range.”
“We will continue to watch closely the emerging flow of economic data.”
After cutting 4 times last year and continued pressure on inflation data as mentioned above, the dovish tone is clear. They’re not quite done yet!
NZD/USD 4 Hourly:
Following on from yesterday’s NZD/USD chart of the day, we see the statement putting more downward pressure on the Kiwi.
Chart of the Day:
Before we take a look at a current chart, lets take a step back in time to a blog post from October 2015 which also featured AUD/NZD as the chart of the day.
AUD/NZD isn’t a chart that I spend a lot of time focusing on, but I never wipe major levels (daily/weekly/monthly) from my charts, even if price has chopped through them one way or another. While flicking through my NZD watch list following this morning’s RBNZ decision, low and behold price is back testing one such major level.
AUD/NZD Daily:
I’ve marked the strong bounces away from the level in both directions, but the fact that when price has gone through the level, it has been strong moves that haven’t looked back is also a telling factor that the level is highly significant.
Being on the back of RBNZ related kiwi selling, I’m not looking for the level to stop price dead in its tracks, but we’ll see how it reacts and whether we can continue to use to the level to manage our risk around in either direction.
Remember what we said above about pressure being heaped onto the NZD? The level might be there, but don’t blindly jump in front of a moving train if you don’t have to!
On the Calendar Thursday:
USD Federal Funds Rate (<0.50% v <0.50% expected)
NZD Official Cash Rate (2.50% v 2.50% expected)
NZD Trade Balance
GBP Prelim GDP q/q
USD Core Durable Goods Orders m/m
USD Unemployment Claims
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