Fed Reserve's Hawkish Tilt Spurs USD Demand
AUD
The AUD was relatively subdued overnight, trading a touch higher across most major currency pairs this morning apart from the USD. Asian Equities were mixed on the close yesterday with the CSI 300 down 0.7% avoiding a major selloff after the PBoC (Peoples Bank of China) injected cash into the banking system, temporarily soothing fears of the imminent default contagion in financial markets as a result of China Evergrande's debt woes. Nikkei was also down -0.7% and the Shanghai Comp gained a minor 0.4%, the ASX rose 0.3%, still below 7300 points. Commodities were mixed with Iron Ore gaining 1.8% while both Gold & Silver were down. Only low-tier economic data locally today with Flash Services & Manufacturing PMIs to be released. Investors focus over the next 24 hours will be abroad as there’s a flurry of economic data globally, US Unemployment Data, UK Monetary policy & the ECB Economic Bulletin being among the releases.
USD
Initial volatility helped AUDUSD trade as high as 0.7296 in the aftermath of the FOMC statement (see below) before the US bulls quickly took over, trading lower this morning at a rate of 0.7238. US Equities were higher with all three indices gaining 1%. The yield on the 10-year US Treasuries was little changed at 1.32%. Oil advanced for the second day with Brent crude up 1.4% to $75.39 a barrel. The FOMC left monetary policy unchanged as widely expected though it was noted that a moderation in the pace of asset purchases may soon be warranted if economic progress continues as expected. The updated dot plot showed a rise in the median cash rate forecast for end of 2022, with the FOMC evenly split with 9 members predicting no change in rates and 9 predicting one 25bp hike. With the 'dots' confirming that a 2022 lift-off is more likely than 2023 (and the composition of the FOMC is arguably getting more "hawkish" in 2023), Powell had no choice but to concede that the taper may end in mid-2022. And that implies a pace of taper on the faster side (i.e. a 15-20bn per month reduction) notwithstanding its description as "gradual". Also adding to the USD strength, inflation forecasts were revised slightly higher with unemployment forecast largely unchanged. A busy day ahead as investors dissect this morning's FOMC statement and tonight the release of US Unemployment data & Markit PMIs.
EUR
The AUDEUR pair is trading at similar levels seen to Wednesday if not a few pips higher, trading at 0.6191 this morning. European Equities finished marginally in the green with the CAC rallying 1.3% and the DAX up 1% and Euro Stoxx 50 up 0.2%. In early data, the EU Consumer Confidence for September printed at -4.0, down from -5.3 and better than expectations of -5.9. Little in the way of data from the Eurozone as investors await Fed’s rate decision. ECB’s Muller has said the ECB will discuss raising regular QE when PEPP ends, adding that the ECB should be able to end the program in March. Tonight, the Eurozone release the September Markit Composite PMIs in addition to the ECB Economic Bulletin.
GBP
The AUDGBP pair is trading at almost identical levels seen to Wednesday, currently trading at a rate of 0.5311 at the time of writing. The London Benchmark FTSE 100 gained for the second day, climbing back above 7000 points (1.5%) as investors took key central bank meetings in the US and the UK in their stride. Tonight, the Bank of England’s policy decision will wrap up the roster of the key events this week. No new forecasts are to be published, but investors will be watching risks that could spark market reactions. The BoE has already discussed the mechanics for switching to the monetary tightening and although the plan could only materialize under specific circumstances, the talking itself is a sign of the process nearing. The main question is when the BoE will make the first move.
NZD
The AUDNZD bucked the trend to make a minor loss, trading at a rate of 1.0344 at the time of writing. Little reaction overnight from the Fed statement as both pairs failed to find directional change. Investors may have drawn some relief in the news embattled Chinese property developer Evergrande would make a coupon payment on its domestic bonds on September 23, calming imminent defaults. This morning, it was reported that New Zealand's central bank said it would proceed with its proposal to tighten mortgage lending in a bid to control an inflated housing market. A quiet day ahead in terms of macro-economic data.