FOMC Minutes Reveal All Members United on Neutral Policy.
Daily Currency UpdateThe implied opening for US stocks is lower after market participants review the FOMC September meeting minutes. The Fed said in in minutes that current interest rates remain accommodating and neutral monetary policy is the goal. If the Feds current economic models remain consistent with projections, we are looking at another hike this year and at least three more rate hikes in 2019. This would take rates to a more “neutral level” of 2.75-3.0 percent, the Federal Reserve considers this gradual approach to tightening policy ideal for future adjustments to economic conditions.
Economic fundamentals this morning showed US Philadelphia Manufacturing Index for October which was forecasted at 20 from a previous reading of 22.9 print higher than consensus at 22.2. We also had weekly initial jobless claims drop to 210 from last week's 215k, while continuing jobless claims also declined slightly to 1.64M, this only solidifies the current FOMC view on moving policy to a more neutral level.
Tomorrow for US economic data we have Exciting Home Sales and Exciting Home Sales Change for September. We also have two FOMC Fed members speaking Kaplan at 9 am and Bostic at 12 pm.
Key MoversThe Canadian Dollar opens weaker this morning against its US counterpart, the USD/CAD hovered between 1.3016 and 1.3056 during the overnight session. The main catalyst for the move was a sharp drop in crude oil and a demand for the Greenback in anticipation for the latest FOMC meeting minutes. The Fed took a more hawkish tone at its September meeting when it raised interest rates and dropped the word “accommodative” from its policy stance. Markets are pricing in an 80% chance of a hike in December.
Yesterday, Manufacturing Sales fell 0.4% in August, nearly as expected, following a revised 1.2% gain in July (was +0.9%). The decline in total shipments during August was driven by an 8.3% pull-back in motor vehicle sales, which followed gains in June and July.
The biggest risk event will be tomorrow's Retail Sales and CPI figures out at 8:30 am, the release is timely as it will give market participants looking to place orders before the Bank of Canada's interest rate announcement next Wednesday the opportunity to capture their potential currency exchange rate prices on the potential volatility. USDCAD support is seen at 1.3014 and resistance is at 1.3071.
On Wednesday the Greenback strengthened against all of its major rivals with the EUR/USD reaching a low of 1.1496 on the back of a combination of softer local equities and undermined by ongoing political tensions.
On the data front, yesterday EU annual CPI was confirmed at 2.1% in September as expected, although the core reading printed 0.9% vs. the expected 1.0%. EU Construction Output was mixed in August, down 0.5% monthly basis, but up 2.5% from a year earlier. Looking ahead today and the EU calendar will be quite scarce, with only Germany publishing the Wholesale Price Index for September.
We continue to expect support to hold on moves approaching 1.1490 while now any upward push will likely meet resistance around 1.1520.
The Great British Pound edged lower through trade on Wednesday following an unexpected dip in inflation throughout September. While broader attentions have been squarely affixed to ongoing Brexit negotiations, the softer CPI print forced sterling back below 1.3150 as investors expectations for tighter monetary policy wavered. The bank of England has said further interest rate amendments will largely depend on the UK agreeing a trade deal with the EU and Wednesday’s soft print offers support for a sustained period of neutral policy.
Brexit optimism has waned through the week leading into today’s summit as Prime Minister May looks to forge a favorable exit agreement. With upside moves primarily constrained investors will be looking to any headline indicating a deal has been reached. While an agreement would undoubtedly prompt upside support for the Pound, investors remain conscious of troubles facing May at home and the need to then force any agreement through parliament. Investors are unlikely to extend bullish bets ahead of a deal being ratified fully.
The AUD/USD pair reached a fresh 2-week high yesterday of 0.7159 but quickly retreated from the level to 0.7100 support. The central theme of the session was broad-based US dollar strength helped by a modest pullback in investor risk appetite.
On the local data front today, we will see the release of September monthly employment figures. The economy is expected to have added 15K new jobs in the month, while the unemployment rate is foreseen at 5.3%, despite an anticipated decline in the participation rate, to 65.6% from 65.7% in August. The country will also release the Westpac Leading Index for September, previously at 0.1%.
From a technical perspective, the AUD/USD pair is currently trading at 0.7142. We continue to expect support to hold on moves approaching 0.7085 while now any upward push will likely meet resistance around 0.7160.
The USD strengthened marginally overnight, leading to a weaker NZD to open the Asia-Pacific session. The Kiwi did have its moments, however, touching just below 0.66 throughout most of the day. Opening this morning at 0.6572, the Kiwi is set to enjoy another benign day on the economic calendar.
The direction was mainly attributable to off-shore forces for the New Zealand Dollar with little to drive the Kiwi throughout the day. The Greenback rose, almost by default, as negative news in Europe and Canada conspired to buoy the USD. The Aussie followed a similar pattern, falling against the Greenback to match the Kiwi.
The Headlines also added to the NZD’s concerns with reports that Trump is planning to ramp up the tensions between the US and China. Initial reports suggest that Trump is planning to withdraw the US from the Universal Postal Union, implying higher shipping charges for China. Adding to the narrative is the US Treasury Department’s semi-annual currency policy report where the US may label China as a currency manipulator. By the Treasury's three-point criteria, China is not a currency manipulator; however, politics may trump economics in this case.
- USD/CAD: 1.3014 - 1.3071 ▲
- EUR/USD: 1.1482 - 1.1537 ▲
- GBP/USD: 1.3076 - 1.3131 ▼
- AUD/USD: 0.7105 - 0.7151 ▲
- NZD/USD: 0.6535 - 0.6578 ▲