Dovish Fed Sends Dollar Lower, Gold Spikes

Daily Analysis - 17/03/2016

FOMC Lowers Rate Hike Forecasts, Gold Spikes up


The US Federal Reserve meeting yesterday showed the staff economic projections being revised lower. The inflation target was now revised to 1.20% while the Fed expects to deliver two quarterly point hikes this year, similar to the market expectations. Gold, which had been trading gradually lower reaching two-week lows in the days leading up to the FOMC meeting, racked up double-digit gains following the Fed’s dovish announcement. April gold futures at the COMEX rose more than $30 reaching $1,261.70.

AUD Surges on Surprise Unemployment Rate Decline

Australia's monthly unemployment data released earlier today showed a surprise decline in the unemployment rate to 5.80% beating forecasts of remaining unchanged at 6.0%. The decline in the unemployment rate brings it back to the previous levels after unemployment surprisingly increased in January. The employment change was however minor with a net loss of 0.3k, against expectations of an increase of 11.6k. Last month's numbers were also revised to -7.4k from -7.9k. The Australian Dollar which already made steady gains against the Greenback posted a high of $0.76.


GBP Ignores Employment Report

The British Pound’s reaction was muted to what was a better than expected employment report released by the Office for National Statistics yesterday. The UK's unemployment rate remained steady at 5.10% as expected, but the surprise growth in average wage earnings was largely ignored. Rising 2.10% in January, above the forecasts of 2.0%, the average hourly earnings managed to reverse its declines after falling to 1.90% a month before. The Pound however ignored the data as the larger Brexit issue overshadowed the economic release. The UK's 2016 budget was also released yesterday where the outlook for GDP was revised lower while UK Chancellor George Osborne cautioned on the risks of a slowdown from China and other economies. The Bank of England will be holding its monetary policy meeting later today where interest rates are expected to remain unchanged.


Manufacturing Sales in Canada Rose 2.30% in January

Factory sales in Canada increased in January, rising 2.30% or about C$53.13 billion with car shipments driving production according to data released by Statistics Canada yesterday. The data marks a continuation of positive data out of Canada on the non-resource sector which was hit by the slump in commodity prices. The jump in manufacturing sales marks a third consecutive month of increase in this sector while also beating the median forecasts. The continued pickup in manufacturing is being seen as a result of a weaker Canadian dollar which has helped to provide a buffer for the economy which is struggling with lower commodity prices as the economy is the slowest in the G7 economies. The Canadian dollar however remains well bid against the US Dollar supported by the recent gains in crude oil prices.


Swiss National Bank Expected to Hold Rates Steady

The Swiss National Bank will be holding its quarterly monetary policy review today and is widely expected to leave its sight deposit rates, i.e. deposits that can withdrawn immediately without notice or penalty, unchanged at -0.75% while the three month Swiss Libor rate is expected to remain at the -1.25% to -0.25% range. The SNB is not under pressure as the Swiss Franc saw a muted reaction to the ECB's meeting earlier this month where the European Central Bank expanded its QE purchases and cut rates. Earlier, Thomas Jordan, the SNB chief, commented that negative interest rates have a limited effect in the markets, perhaps hinting that the SNB will leaves rates unchanged in the near future.


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