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FOMC to Determine USD Direction

Federal Reserve Meets Again Today Ahead of Interest Rate Decision Due Later

usd-direction

While markets are fairly confident no rate hike will be announced today, the focus shifts to the FOMC Statement which could provide hints into the future course of action from the Federal Reserve. Following up after the FOMC statement, the RBNZ’s interest rate decision is due with expectations for no additional rate cut.

UK GDP Misses Estimates

The preliminary estimates for the UK's third quarter GDP saw the UK's economy expand at a slower than expected pace of 0.50%, slowing rapidly from the 0.70% growth seen just a quarter ago. The index of services however expanded at a pace of 0.90%, below estimates of 1.00% but up from 0.80% recorded during the prior period. The major contributor to the quarterly GDP remained the services sector while manufacturing and construction dragged heavily on results. Weakening construction and a slowdown in the real estate sector have largely contributed to the downward pressure on GDP, offsetting gains from the services sector. The British Pound initially reacted with bearish momentum to the news, dipping towards session lows of 1.5310 before staging a modest recovery, but nevertheless closing the session near lows at 1.5303.

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Australian Quarterly Inflation Eases

The quarterly consumer inflation number released earlier by Australia showed a slower than anticipated increase in prices of 0.50%, missing estimates of 0.70% and falling from the 0.70% increase recorded in the previous quarter. Core inflation managed to rise at a 0.30% pace, missing estimates of 0.50% and the earlier print of 0.60% inflation in the second quarter. Commodities continue to be the predominant drag on the inflation outlook with no near-term rebound forecast despite the highly accommodative efforts of the Reserve Bank of Australia. On an annualized basis, the Australian inflation rate stood at 1.50%. It is expected that at the present pace, Australian inflation could very well miss the RBA’s target rate expectations for 2015. The Australian dollar declined on the news and is currently down -0.95% for the session versus the US dollar, trading at 0.7118.

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All Eyes on FOMC

The US Federal Reserve meets today for the second day of monetary policy meeting before releasing the decision later in the session. There is no press conference scheduled so the FOMC's statement will be the main event. Previously the Fed had noted that it could look into hiking rates in October. However, given the weak payroll reports for August and September, the markets are expecting the Federal Reserve to hold rates steady at today's meeting. In the unlikely event of a Fed rate hike, the shift in policy could make the markets very volatile in the near-term. The Fed funds futures expectations have scaled back probabilities of a December rate hike expectations significantly and therefore the tone of the statement will be key for markets. EURUSD is currently looking bearish after closing yesterday on a doji candlestick pattern following a failure to rise above highs of 1.1070.

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RBNZ Expected to Hold Steady

The Reserve Bank of New Zealand is due to meet early during the overnight Asian trading session, just a few hours after the FOMC meeting. Expectations are for the RBNZ to hold interest rates steady at this meeting at the current 2.75%. At a speech few weeks ago, RBNZ Governor Wheeler noted that housing prices would be one of the main concerns for monetary policy while the recent increase in the global dairy prices could be seen as a positive. While the trade deficit reported in the previous session highlights the challenges facing policymakers, the Central Bank still has more tools at its disposal to fight any protracted slowdown in the economy. NZDUSD has managed to strengthen significantly in recent weeks and in the event of no policy change, the RBNZ is likely to strike a dovish tone. NZDUSD is currently trending near 0.6721 with support at 0.6690.

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