Interest Rate Decision Day in the US Today at 2PM EST
Wednesday 26 September, 2018
Daily Currency UpdateYesterday US Consumer Confidence rose for September recording its highest level in nearly eighteen years and beating expectations. The US consumers assessment of current conditions is positive which is bolstered by a strong economy and robust job growth in the US. The Consumer Board's index rose to 138.4 this month from 134.7 in August.
There are no scheduled releases in the US this morning. All eyes will be on this afternoon's Federal Open Market Committee (FOMC) statement with the official cash rate expected to rise 0.25% to 2.25%. Traders are predicting two more rate hikes this year from the Federal Reserve one today and another in December as US economic growth moves higher. Market participants will focus on the statement released and Chairman Powell's press conference. With next year’s policy path less clear participant question if Powell acknowledges US President, Donald Trump’s aggressive trade policy which may cause headwinds to growth in 2019.
The greenback yesterday, regarding the US Dollar Index (DXY), fell a fifth of a percent to 94.06 against a basket of its rivals. Through the overnight and into the North American open the Dollar Index is 0.25% higher at 94.36 ahead of the Federal Reserve rate announcement slated for 2 pm today followed by Chairman Powell's press conference at 2:30 pm.
Key MoversThe Canadian Dollar continued its weekly trend and trading flat for most of the day yesterday and through the overnight ahead of the FOMC policy announcement slated for release today at 2 pm EST. Broader developments remain dominant in the absence of any high-level domestic data.
The Canadian economic calendar is light but the loonie has seen some minor movement from developments on the geopolitical landscape. Crude oil prices remain elevated as due commodities which do support the loonie. Conversely, however, US Trade Representative Robert Lighthizer recently commented on the on-going NAFTA negotiations and stated that Canada was not making concessions on crucial NAFTA issues and time was running out. The market did oscillate on the news but ultimately has ended in a stalemate ahead of the US FOMC’s policy announcement due later on today.
All eyes remain fixed on the expected rate hike by the FOMC today. CAD investors will also keep a close eye on US GDP numbers on Thursday and the Bank of Canada’s Governor Poloz’ speech at 5:45 pm, also Canadian monthly GDP is set for Friday.
With little on the domestic calendar and a quiet day in the papers the market has mainly tread water ahead of the United States FOMC’s policy announcement slated for release a little later today. The Euro was no exception to this, trading within a tight range to open this morning at 1.1741.
There was little for market pundits to digest in overnight trading, but the European Central Bank did release a statement. ECB Chief Economist Praet downplayed remarks from the earlier speech by ECB President Draghi that was interpreted as mostly hawkish. The Euro did slide slightly on the news but mostly took it in its stride. Across the Atlantic, there was also some strong US consumer confidence numbers that reiterated the on-going strength of consumer spending and the tightening US labor market.
Moving into Wednesday, all eyes are fixed on the upcoming FOMC meeting which is set to see the Federal Funds rate rise 25bps to 2.25%. The focus will also be on clues to the Fed’s thinking on projected rate guidance.
Tuesday saw the Sterling rise for the second consecutive day as a softer dollar and optimistic Brexit expectations buoyed the pound. Rising 0.4% on the day the GBP/USD touched highs of 1.3193 as traders continued where they left off on Monday, unwinding short GBP/USD positions after last week’s selloff. The pound was also slightly stronger against its European counterpart with the EUR/GBP opening this morning Sydney time at 0.8927. It is worth noting that investors were still wary of bidding the sterling up above last week’s high of 1.3295 as the uncertain political situation, particularly prime minister May’s position, continue to weigh on the currency. The UK labor party conference has only served to highlight how divided the party is on Brexit.
Looking ahead today GBP/USD traders will be watching the FOMC monetary policy decision. Markets are expecting the FED to raise their benchmark interest rate, however, any surprises in the accompanying commentary from chairman Powell will inject some volatility into the market. Thursday also sees ECB president Draghi and BOE Governor Carney deliver speeches before we get UK Q2 GDP and current account metrics on Friday.
On the technical front GBP/USD seems relatively well supported around 1.3082 with any upside moves likely to be met by resistance at the 1.3200 handle.
In what was a quiet day of trade for markets yesterday, the AUD slipped against the USD from 0.7262 to briefly touch lows of 0.7236 before rebounding into this morning open where the local currency is currently buying 0.7250 US cents.
With US Consumer Confidence rising for September recording its highest level in nearly eighteen years and beating expectations of a decline shows that consumers assessment of current conditions is positive which is bolstered by a strong economy and robust job growth in the US. The Consumer Board's index rose to 138.4 this month from 134.7 in August. This data along with investors waiting for the result of the Federal Reserve’s FOMC meeting where an interest rate hike is expected kept a lid on the Aussie.
There is no local data due today, however all eyes on the US Federal Reserve tonight. On the technical side, the first line of support is at 0.7230 followed by 0.7200, on the upside, resistance at 0.7280 and 0.7300
The New Zealand dollar continues to trade in a holding pattern as a quiet day on the markets for the local currency meant there had been little news to report. Opening the morning at 0.664/, the Kiwi moved in a steady direction higher but was limited to a thirty-six-point range for the day as we saw the NZD/USD cross top out at 0.6660.
We expect market participants to become more involved over the next 24 hours as trader place directional bets as both the central banks of the United States and New Zealand meet for their latest interest rate decision today and this evening. It is expected the Federal Reserve will increase interest rates by 0.25% with the RBNZ expected to hold steady at 1.75%
The New Zealand Dollar opens this morning at 0.6647.
- USD/CAD: 1.2903 - 1.3029 ▼
- EUR/USD: 1.1730 - 1.1779 ▼
- GBP/USD: 1.3137 - 1.3182 ▼
- AUD/USD: 0.7240 - 0.7282 ▲
- NZD/USD: 0.6642 - 0.6678 ▲