Speaking to a Congress Joint Economic Committee last night Janet Yellen said that lower interest rates will remain so for a considerable amount of time. She is quoted as saying that ‘’the jobless rate is still too high and inflation is still too low to think about hiking interest rate’’.
This keeps the status quo stance in line with previous rhetoric by the Fed Chief that the Central bank is in no hurry to hike its target for short term interest rates which remain 25 basis points shy of zero.
The Stock market as it always does when it gets confirmation that its free money won’t be withdrawn anytime soon, cheered this result with the main indices all putting on close to 1%.
The Currency markets pretty much priced in what we all knew she was going to say , with the US Dollar recovering a little ground from the selloff on Tuesday , with the Aussie ,Euro and Pound all giving ground, albeit ever so slightly.
A big week ahead in terms of event risk economic releases for the Domestic market, with the RBA rate decision already in the rear-view mirror. Rates held steady at 2.5% with a cautious to slightly dovish tone from Governor Glenn Stevens saying that even though employment has improved over the last 2-3 months, a long term recovery in the labour market is still a ways off so they will remain accommodative in their stance for the foreseeable future. Haven’t we heard that before…..they must all have the same speech writer, Fed Chiefs I mean.
Next up to the plate is Australian Unemployment due for release at 11.30am AEST. If analysts’ expectations of a slight rise from 5.8% to 5.9% are met, it will confirm Glenn Stevens’ speech after the rate decision; that the long term labour market needs to see improvement before he changes the RBA’s stance on rates.
Chinese trade balance and YOY Exports and Imports also a possible Aussie Dollar mover, with Exports forecast to drop to 1.7% from 6.6% and Imports also set to also come in lower from 11.3% to 2.3%.
The Bank of England Rate decision should be of interest to any person holding either Australian Dollars or Pound Sterling. If they do decide to raise rates in line with their remit of an unemployment rate of 7% or below, rate hikes come into their thinking. If this occurs, or is even hinted at in the accompanying speech, then we may very well see a much stronger Pound and a weaker Australian Dollar.