Kiwi dips as Fed’s dovish hike doesn’t meet interest rate market expectations
Thursday 20 December, 2018
Daily Currency UpdateThe New Zealand dollar opens lower this morning having slipped below 0.68 in the wake of the FOMC and Federal Reserve’s monetary policy decision. As anticipated the Fed raised rates drawing attention back to the accompanying commentary and statement surrounding the decision. Markets had anticipated the Fed would proffer a dovish undertone hinting at a slowdown in the pace of hikes and a cautious or prudent approach to monetary policy moving into 2019. The Fed however failed to deliver, offering no sign there would be a pause in 2019 signalling two rate hikes were still on the table.
The somewhat more hawkish lilt help bolster the USD and force it off multiweek lows and forced the NZD to slip below 0.6790. The NZD was beat out as the days worst performer only by its antipodean counterpart and with little data on hand a souring in risk appetite suffered following softer European and Chinese data sets will likely drive broader direction.
Attentions now turn to key NZ GDP Data with Q3 growth expected to ease to 0.5% with Year on Year growth at 2.7% while US data sets Friday offer the final headline macroeconomic event before the holiday season. Watching supports on moves approaching 0.6740 with gains capped on moves approaching 0.69.
Key MoversThe Australian dollar is weaker this morning when valued against the U.S dollar falling 1.09 percent to an overnight low of 0.7087 on the back of US Federal Reserve’s December interest rate decision. The US central bank’s Federal Open Market Committee raised the official cash rate by 25 basis points to a range of 2.25% to 2.5%. This will lift the benchmark interest rate to its highest level since early 2008.
On the release front today in Australia all eyes will be on the unemployment rate decision at 11.30am AEDT with expectations the jobless rate will remain at 5 percent.
From a technical perspective, the AUD/USD pair is currently trading at 0.7111. We continue to expect support to hold on moves approaching 0.7085 while now any upward push will likely meet resistance around 0.7120.
The GBP rose during yesterday’s trading session to open at 1.2669 against the USD this morning. The Pound slipped against the Euro in preparations for a no-deal Brexit. According to data published by the Office for National Statistics yesterday, domestic CPI inflation slowed from 2.4% to 2.3% last month. While this was in line with market expectations, this was the slowest pace of inflation in 20 months. This drive appeared to be due to weaker price growth in recreational products such as video games and toys, as well as a downturn in oil prices.
This is part of a series of releases as the Bank of England prepares to make its final rate decision of the year. Later tonight the ONS will release further information regarding retail sale values, followed by the interest rate vote by the Bank of England. The expected forecast is for all 9 MPC members to vote to hold rates, which is the same outcome as the previous month.
The US Dollar index closed weaker Wednesday as investors forced the worlds base currency toward 7 weeks lows against the Yen and Euro in the lead up to the Federal Reserve’s Monetary policy announcement. As widely anticipated the Fed raised rates but offered a cautious or dovish undertone to it accompanying commentary, suggesting that a slow down in global and domestic growth and creeping lagging indicators dictate a more prudent and data-based approach to monetary policy adjustment moving forward. The FOMC forecasted two rate hikes through 2019 and a 3rd in 2020, the 2 hikes next year are important and is perhaps more aggressive than some analysts had priced in affording the USD a short bounce of the days lows, forcing the Euro back below 1.14.
With risk appetite soured following a string of softer Chinese and Eurozone data the focus now turns to ongoing data prints for broader and medium term USD direction. IT appears the long run cycle in the US is slowing, while the US/China trade dispute continues to weigh on markets attempts for clarity. Through the next three months trade talks will be crucial in determining long run direction as an ongoing dispute and disruption of US corporate earnings could start to disseminate through the wider economy weighing on data sets and possibly waylaying future monetary policy adjustments. With Year end rebalancing underway a USD correction lower is on the table, especially if the Fed doubles down on it cautious approach.
With little of note on the calendar for Thursday attentions turn to Core Durable Goods Orders and Final GDP data for Q3 as key markers leading into the last week of the year.
The Euro enjoyed a rollercoaster overnight session as it initially worked its way higher against its US counterpart. Touching highs of 1.1440, the Euro moved higher ahead of the US Federal Reserves’ policy announcement but was ultimately unwound as the Federal Reserve stalwartly held its ground against its critics. The less-dovish than expected announcement forced the Euro lower, to open this morning at 1.1381.
Despite the result, the Euro did find itself well supporting moving into the back end of the week as the European Commission decided not to go ahead with sanctions against Italy. Last week, Italy trimmed its spending plans to reduce its target from 2.4% to 2.04% which was enough for the European Commission to hold off on triggering excessive deficit procedures and bringing the Italian saga to a close.
Moving into Thursday the Euro finds itself with a slow domestic calendar to digest. Attentions will turn to across the channel for direction and the headlines.
The Canadian dollar is higher when valued against the Greenback jumping more than 50 pips after the US central bank’s Federal Open Market Committee meeting The USD/CAD pair reached an overnight high of 1.3507, the strongest level since June 2017. The US dollar remains strong even though the updated economic projections reduced the number of expected rate hikes in 2019 to two from three.
On the release front today we will see ADP Non-Farm Employment Change and monthly Wholesale Trade which is a leading indicator of consumer spending.
From a technical perspective, the USD/CAD pair is currently trading at 1.3481. We continue to expect support to hold on moves approaching 1.3445 while now any upward push will likely meet resistance around 1.3545.
- NZD/AUD: 0.9475 - 0.9615 ▲
- GBP/NZD: 1.8500 - 1.8900 ▲
- NZD/USD: 0.6700 - 0.6850 ▼
- NZD/EUR: 0.5900 - 0.6020 ▼
- NZD/CAD: 0.9080 - 0.9200 ▼