The Federal Reserve met overnight for their June meeting on Monetary Policy and left rates on hold at 0.25% for the 57th consecutive month. This result was expected by markets as the data dependant Fed wait for more promising results of the economy recovering before raising the Official Cash Rate for the first time since 2008.
There is more feeling towards a rate hike in the 3rd Quarter of 2015, after a poor first quarter and followed by slightly stronger 2nd quarter of Economic data. The weak first quarter results put to bed any chance of a rate hike before the 3rd quarter. After the disappointing results of Q1, Federal Reserve Janet Yellen said:
“If confirmed by further estimates, my guess is that this apparent slowdown was largely the result of a variety of transitory factors that occurred at the same time, including the unusually cold and snowy winter and the labour disputes at ports on the West Coast, both of which likely disrupted some economic activity. And some of this apparent weakness may just be statistical noise. I therefore expect the economic data to strengthen”
Solid data in both April & May along with job growth remaining steady and wage growth hinting at accelerating has proved what most of the Federal Reserve Policy makers believe, that Yellen’s reputation as a Top Forecaster is a well deserved title.
“Since the committee last met in April, the pace of job gains has picked up and labour-market gains have improved further” Yellen said overnight in Washington. She also commented that she was “encouraged by tentative signs of stronger wage growth”
The Fed will now leave the door open for a rate hike in September with the option of delaying until December if the data does not continue to strengthen. If it can be proved that the first quarter weakness was in fact transitory then it’s more likely to see a move in September followed by a second rate increase in December.
A rate rise in the US along with continued speculation that the RBA are open to rate cuts here in Australia are pointing towards a continued decline in the AUD/USD exchange rate. The recent report by Morgan Stanley in which they expect to see the AUD/USD exchange rate trading as low as 0.68c before the end of 2015 seem entirely possible.
The AUD/USD Exchange Rate was trading at 0.7744 at 8:00am this morning after seeing a low of 0.7641 overnight.
GBP/AUD Soars above the $2.00 mark to reach a 7 year high.
After several weeks of the GBP/AUD exchange rate range trading around the $2.00 mark we have now seen it break through that barrier and push to a high of $2.0550 overnight.
Positive inflation (CPI) figures on Tuesday evening followed by positive employment and wage figures on Wednesday night have seen the GBP strengthen markedly against the AUD. British workers’ pay grew at the fastest rate in nearly four years in the three months to April.
The Bank of England voted 9-0 to keep rates on hold for now, however BoE policymaker Kristin Forbes said “The next move in interest rates is going to be up and it’s coming at some point in the not too distant future”
The GBP/AUD exchange rate was trading at $2.0449 at 08:00 this morning.