The Australian Dollar has lost all the gains it made in yesterday’s trading session, falling more than 1 US Cent, after the Federal Open Market Committee’s (FOMC) surprisingly hawkish assessment of the American Economy.
The AUD made it to a high of 89.11 US Cents during the offshore session prior to the release of the FOMC statement, and has fallen back into the high 0.87 US Cent range for the commencement of today’s local trading.
Federal Officials voted on the much anticipated decision on the Quantitative Easing (QE) Program, the vote was for the QE program to be finalised by November 1st.
At the Rate decision announcement Investors paid significant attention to the hawkish statements made by The Fed relating to the labour market which gave the US Dollar the substantial rally we have seen during the offshore session. ‘On balance, a range of labour market indicators suggests that underutilization of labour resources in gradually diminishing’. Whilst this statement may not sound particularly positive, in comparison to recent statements made by Chairwomen Janet Yellen this is a significant improvement. Prior to this statement the labour market has consistently been described as having significant slack.
In relation to the timing of future rate rises the message was nonspecific and data dependant. The Fed continued the message that the rates would remain at their current rate for a ‘considerable time’, however did make comment that “If incoming information indicates faster progress toward the committee’s employment and inflation objective than the committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated.”
Earlier this morning, the New Zealand Federal Bank also released their Interest Rate decision and accompanying statement. No surprises that the Interest Rate was left unchanged at 3.5 per cent. The accompanying statements by Governor Graeme Wheeler statement that ‘growth in the New Zealand economy has been faster than trend over 2014, reducing unemployment and adding to demands on productivity capacity.’
In last month’s statement by the RBNZ, Wheeler stated that NZ Dollar was too high and that the rate was ‘justified and unsustainable’. This month it appears that this is less of a concern, the statement this month mentioned that ‘Lower commodity prices and increased global financial market volatility have taken some pressure off the New Zealand dollar.’
There is no further high level economic data out today until the commencement of the offshore session, where we will have further high level data out of the US in the form of Advance Gross Domestic Product (GDP) and Unemployment Claims. If these figures continue to provide positive results for the US, we may see the Australian Dollar lose further grounds against the USD overnight.
Over in the Euro-zone we can also expect the release of the German Preliminary Consumer Price Index (CPI), the German economy has of recent times providing weak economic data releases and the forecast for CPI appears to be consistent with the recent trend with the expected result at -0.1%.