Trading news

US dollar stable as Fed holds rate unchanged, NZ back to policy divergence

- In Europe futures are moving lower, although sellers seem to be losing faith in the sustainability of the sell-off
- In our view, the Fed wants to avoid ending up in the same position as last year when, after months of hawkish comments, it had to increase rates to save its credibility in spite of mixed signals from the US economy
- RBNZ, leaving rates unchanged, maintained its optimistic view for the year ahead, writing that “growth is expected to increase in 2016"
- RBNZ wants to maintain the weakness of the NZD to help curb disinflationary pressures
- NZD/USD, we remain bearish on the Kiwi with 0.6240 as the next target
- USD/JPY, we expect the pair to recover early 2016 losses as the risk-off sentiment fades away and the market refocuses on the country’s lacklustre fundamentals
 
As expected the Federal Reserve left the target range for the federal fund rate unchanged at between 0.25% and 0.50%. However, it appeared that the Fed is more cautious when it comes to discussing the risk to growth and the possible effects of the current market turmoil on the Fed’s thinking and more specifically, the path of tightening. It’s clear that the Fed wants to avoid ending up in the same position as last year when, after months of hawkish comments, it has had to increase rates to save its credibility in spite of mixed signals from the US economy. The US dollar remained stable amid the rate decision with EUR/USD trading range bound between 1.0860 and 1.0920. The March meeting will be much more decisive, just like the market’s expectations.
 
After cutting rates four times in 2015, the Reserve Bank of New Zealand decided to leave the official cash rate unchanged at 2.50%. According to the statement, the weak spot in inflation is temporary, “mainly due to falling oil price“ and is expected to increase over 2016. On the growth side, the RBNZ maintained its optimistic view for the year ahead, writing that “growth is expected to increase in 2016 as a result of continued strong net immigration, tourism, a solid pipeline of construction activity, and the lift in business and consumer confidence”. NZD/USD dropped 1.40% amid the release of the statement as Governor Wheeler made clear that monetary policy will continue to be accommodative, adding that further monetary easing may be required. The bias is clearly on the easing side as the Central Bank wants to maintain the weakness of the New Zealand dollar to help curb disinflationary pressures. We remain bearish on the Kiwi with 0.6240 as next target.
 
***Yann Quelenn, market analyst: “Global turmoil is also largely affecting the New Zealand economy, especially the China's slowdown. Boosting exports for New Zealand is a key goal and we should see continued weakness in the Kiwi despite policymakers being optimistic regarding the domestic economy and growth in tourism and construction (amongst others). The next rate decision is due March 10th. In the meanwhile we assume that the central bank will be gathering more data in order to remove the dovish stance towards further easing. It is obvious that inflation will be the key driver for another rate cut in 2016. Over the medium term we remain bullish on the USDNZD and target 1.6000.”***
 
In Japan, retail sales disappointed substantially in December, contracting 1.1%y/y, while economists were expecting an increase of 0.2% and the previous month figure was revised lower to -1.1% from -1.0%. USD/JPY gained 0.40% amid the headlines, rising to 118.90 in Tokyo. Overall, we expect the pair to recover early 2016 losses as the risk-off sentiment fades away and the market refocuses on the country’s lacklustre fundamentals.
 
In the equity market, returns are mixed in Asia as the panic move comes to an end. The Japanese Nikkei seemed unable to break the 17,000 level to the downside and is trading slightly above, waiting for buyers to wake up. The index lost 0.71% during the session,while the Topix index was down 0.61%. In mainland China, indices continued to move south with the Shanghai and Shenzhen down 2.92% and 4.18%. In Europe, futures are also moving lower, however sellers seem to be losing faith in the sustainability of the sell-off.
 
Today traders will be watching unemployment rates from Denmark; retail sales and unemployment rate from Spain and Sweden; 4Q GDP from the UK; COPOM minutes, unemployment rate, central government budget balance and inflation from Brazil; CPI from Germany; initial jobless claims, durable goods orders and pending home sales from the US; interest rate decision from South Africa (a rate hike is expected).

Thursday, 28 Jan, 2016 / 12:26

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Source : http://en.swissquote.com/fx/news

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