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Greenback enjoys only measured gains despite hawkish FOMC

By MATT RICHARDSON

The Australian Dollar ascended against the Greenback yesterday as government yields hit their highest level since 2015 which gave support to the local unit. Pre FOMC announcement, AUD/USD hit a high of 0.8100 but soon pulled back falling almost a cent back under 0.8000 following the Fed release. As widely expected the Fed held the target rate steady at 1.00-1.25% and also announced the beginning of balance sheet normalisation next month after almost ten years of the onset of the global financial crisis. Markets are led to believe there will be three rate hikes in 2018 and perhaps one in December of this year. Aussie currently buying 0.8030 when valued against its US counterpart. Later today sees the RBA Governor Lowe speak in Perth on a speech titled ‘The Next Chapter’ to the American Chamber of Commerce. 

The New Zealand Dollar is slightly stronger against the Greenback after the Federal Reserve on Wednesday said it would embark next month on its biggest policy shift since 2015. The central bank confirmed that it would start trimming the $US4.5 trillion balance sheet it built up. On the release of the FOMC statement the Kiwi spiked to a six week high of 0.7433. Looking ahead locally today and all attentions turn to the release of Gross Domestic Product for the second quarter which is expected to rise 0.8%, taking the year on year pace to 2.5%. The NZD/USD pair is currently trading at 0.7352. We now expect support to hold on moves approaching 0.7340 while any upward push will likely meet resistance around 0.7400.

The Great British Pound enjoyed mixed fortunes through trade on Wednesday, rallying early before relinquishing gains in the wake of the Federal reserve’s policy announcement. Sterling found support early after retail sales for August printed well beyond expectations and heightened the likelihood of a BoE rate hike before the year is out; 66% of analysts are pricing in a November rate adjustment. Surging through 1.36 Sterling met resistance in softer wage growth and weaker company investment expectations edging lower into the FOMC’s policy announcement. The GBP then slumped back through 1.35 and touched intraday lows at 1.3456 following hawkish Federal Reserve commentary. Attentions now turn to mid-level macroeconomic indicators ahead of key Brexit commentary from Prime Minister Theresa May on Friday. 

The US dollar advanced across the board through trade on Wednesday buoyed by commentary from the FOMC and Federal Reserve. Investors looked to unload USD holdings leading into the announcement forcing the greenback lower against a basket of major currency counterparts. The 19 nation Euro touched intraday highs at 1.2019 while the Yen touched lows at 111.25. The Dollar then enjoyed immediate upside and touched two month highs against the yen surging back through 112 while the Euro tumbled below 1.19. The U.S Central bank confirmed it would begin tapering its bond buying program next month reducing the scope of U.S treasuries to be re-invested. This was however largely anticipated and it was the suggestion a rate hike remains on the table before year end that drove the dollar higher. Despite persistently low inflation and mixed macroeconomic performance the committee members maintained their path to rate normalisation through 2018, however a reduction in the long term outlook from 3.00% to 2.75% capped USD upside while addendums to action and requirements for improved macro conditions ensured extended gains were curbed. Attentions now turn to ECB President Mario Draghi as he hits the wires and addresses attendees to the European Systemic Risk Board’s annual conference. Investors will be looking for any clues the ECB will soon begin tapering its own QE program.