The US dollar trades with little volatility in anticipation of the first Federal Open Market Committee meeting of the year
Wednesday 30 January, 2019
Daily Currency UpdateThe US dollar is rising 0.07 this morning but it continues along a downtrend from mid-December. The first Federal Open Market Committee (FOMC) meeting of the year wraps up later today at 2 pm EST. Chair Jerome Powell will host a press conference at 2:30 pm EST which will be the focal point as he is expected to give far more specifics on the next move for the Fed. Powell will probably talk about inflation, unemployment, and growth more than anything else based on his past statements. An interest hike announcement by the Fed is not anticipated at today’s meeting, so the press conference will be the focus.
The balance sheet will likely be the primary focus later today. Powell might have to manage how much additional detail to provide on the balance-sheet framework based on the progress of internal discussions. Sophisticated market participants have already signaled to the Fed an expectation that it will need to maintain a relatively abundant reserve regime and that the unwind likely will not last beyond 2020.
The Fed might deliver a message of patience, and it may not be as dovish as the market expects. This might generate a more significant bounce in the US dollar, because it has been trading weaker recently. It is likely premature to expect no rate hikes this year, after knowing how much stronger, relatively speaking, the US economy is in comparison with other economies.
Key MoversThe Loonie is having a rally this morning. The USD/CAD pair fell around 0.40 percent, touching an intraday low of 1.3213, which was supported by a mildly improved risk tone that lifted the commodity bloc currencies. As mentioned yesterday, technically speaking, the USD/CAD had strong resistance between 1.3270 and 1.3280, and there was no bad news in the equity market yesterday. Furthermore, the crude oil WTI increased 1 percent this morning and it is still trading within a range of 52 and 54 US dollars the barrel. Given that the first Federal Open Market Committee (FOMC) meeting of the year in the US wraps up later today at 2 pm EST, the USD/CAD fall might be contained. However, technically speaking, the USD/CAD might fall close to the 1.3100 handle if a stronger crude oil WTI helps it and if it breaks above 54 US dollars.
There are no releases in Canada until tomorrow when the monthly GDP and yearly GDP report are going to be released.
The US dollar is forming a price base in intraday trading, which might be bullish in the short term. Additionally, given that there is a US dollar event later today and the USD/CAD already fell, the USD/CAD volatility might be subdued within the next few hours with a slight bias for the US dollar to have a bounce.
The EUR/USD pair has traded within a narrow range over the last 24 hours. That said, the single currency has been pressured lower in overnight trading following the release of weaker than expected German price data, specifically import prices. German CPI had initially been due for release today but has been delayed to February 21st. French consumer spending has also performed well under market expectations this morning.
Regarding data, it’s a more significant day for the Euro tomorrow with a plethora of essential releases due including European Prelim Flash GDP and German employment data. As for today, a steady range in EUR/USD is likely to ensue until 2:00 pm EST.
The GBP/USD pair was well bid in the lead up to yesterday’s parliamentary vote. The pair traded to 4-month highs, that is until the Cooper amendment – a vote to avoid a no-deal – was rejected by 321 votes to 298 last night. The Cable gapped lower by 80 points or so on the news but found good support under and close to the 1.31 figure as the Brady amendment, which passed by 317 votes to 301, gave Theresa May a mandate to go back to Brussels to try and renegotiate the withdrawal agreement, or the future of the Irish border. The Brady amendment “requires the Northern Ireland backstop to be replaced with alternative arrangements to avoid a hard border; supports leaving the European Union with a deal and would, therefore, support the withdrawal agreement subject to this change."
However, many EU officials have been quick to say that nothing will change at their end. Within minutes of the amendment passing, a spokesman for Donald Tusk, the European Council president said, “…the withdrawal agreement is, and remains, the best and only way to ensure an orderly withdrawal of the United Kingdom from the European Union…..The backstop is part of the withdrawal agreement, and the withdrawal agreement is not open for renegotiation.”
The Australian CPI data results were better than market forecasts overnight, although the more important core measures were stable and under the RBA target zone. The AUD/USD rallied on the headline though gapping up through 0.7150 and close to the 0.7200 prominent figure. However, it is trading at 0.7182 this morning, a 0.39 percent increase.
Whether this headline is enough to force a change in the RBA’s policy or language next week is unlikely. It does make things slightly more interesting for traders. However, before this, AUD/USD traders have a whole host of mostly US risk events and data to contend with.
The NZD/USD pair traced the bounce higher in the AUD/USD last night, but ultimately the ranges have been narrowing amid a lack of local data releases and as investors await the latest US FOMC Statement. The NZD/USD pair is trading lower this morning at 0.6825, a 0.13 decrease.
- USD/CAD: 1.3175 - 1.3252 ▼
- EUR/USD: 1.1400 - 1.1444 ▲
- GBP/USD: 1.3000 - 1.3135 ▼
- AUD/USD: 0.7126 - 0.7205 ▲
- NZD/USD: 0.6800 - 0.6860 ▼