Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD gains as Fed stands out from the crowd
The US dollar was higher overnight after the Federal Reserve minutes as the report confirmed the broad consensus view that Fed is unwilling to cut rates further — for now.
The minutes most notably said “participants observed that the Committee was well positioned to take time to assess the evolving outlook for economic activity, the labor market, and inflation”.
Clearly, the Fed wants to wait for further evidence that inflation has cooled.
The Fed’s report contrasted with other central banks that are more willing to cut, most notably yesterday’s Reserve Bank of New Zealand move to cut interest rates by 50 basis points to 3.75%.
The RBNZ signaled further rate cuts are likely with the central bank forecasting another 50bps of cuts by the end of the year.
Aussie struggles at December highs
The Australian dollar drifted lower from two-month highs overnight, pressured by the stronger US dollar, and ahead of today’s January jobs report.
Bloomberg is forecasting a 20.0k increase in jobs in January (down from 56.3k in December) with the unemployment rate predicted to rise from 4.0% to 4.1%.
The jobs report is due at 11.30am AEDT.
The AUD/USD has recently struggled to rise above short-term resistance at 0.6375 and a weaker local jobs number could weigh further on the pair.
Chinese yuan weaker for third day
The Chinese yuan was weaker for a third day this week on Wednesday
The USD/CNH continues to trade in a clear range between 7.2500 and 7.3500 but the risk remains for a further move higher after a massive slide in Chinese bond yields in the December quarter.
The Chinese 10-year bond fell from 2.25% at the start of October to 1.60% by year-end as worries grow about the Chinese economy.
Today, all eyes are on the key Chinese loan prime rate decision, but markets expect the People’s Bank of China to remain on hold.
Kiwi more volatile after RBNZ
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 17 – 22 February
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
