The two biggest hitters in the market, Fed President Janet Yellen and ECB President Mario Draghi had their chance to speak last night. Market analysts were eagerly awaiting the announcements as speculation on key monetary movement was bound to be hinted at. To investors’ glee a few subtle hints were provided and they all point to activity in December.
Janet Yellen again hinted that interest rate hikes will be gradual. This has been the theme over the last 5 months; however, the market is starting to anticipate a hike next month, in December. Currently the probability of a rate hike in December is sitting at 67.8% according to the CME Groups Futures Market prediction. More interestingly, the chance of a hike before March is currently almost certain. This move from the US Federal Reserve would strongly assist the USD moving forward as it would incentivise bond purchasing and investment in US dollars.
Mario Draghi as said above; also spoke last night this for almost the opposite reason. The general tone of the announcement was quite dovish in regards to monetary policy moving forward. Over the last few weeks analysts have been expecting more monetary easing plans out of the European Central Bank. From the comments last night from Draghi; the market is widely expecting more easing in December. The ECB have most likely delayed the impending increase to QE due to the favourable exchange rates. However, due to some deflationary issues as a result of the recent strength in the EUR; the market fundamentals are forcing the ECB’s hand for action.
We should end the week fairly steady as the market is only expecting a few announcements out of the FMOC, Consumer Sentiment and Retail Sales out of the US. Both the Retail Sales figure and Consumer Sentiment are expected to be an improvement from the last month so we may see a slight last minute lift from the USD/AUD to end the week.