Global overview
FX markets remain cautious ahead of tonight’s key Federal Reserve meeting. China’s loan prime rate, the Bank of England and Bank of Japan set FX markets up for a volatile end to the week.
All eyes on Fed
The US dollar was higher overnight as markets awaited the critical US Federal Reserve decision tonight.
While the market expects no change at this meeting, the risk of further hikes remains, especially as the oil price continues to surge – potentially driving inflationary pressures.
The key risk tonight remains that the Fed continues to signal further rate hikes are possible – driving the recently-stronger USD index to new six-month highs. A break to new highs could be a sign of further potential gains.
Otherwise, sharemarkets were mostly lower, and also worried about the potential for further tough talk from the Fed.
The S&P 500 fell 0.7% while the Nasdaq lost 0.9%.
The stronger USD saw the EUR/USD fall 0.1% while the USD/JPY gained 0.2%. The GBP/USD was flat.
Aussie higher after RBA minutes
The Australian dollar bucked the trend with a belligerent sounding Reserve Bank of Australia providing support.
The RBA also has oil-price problems with the bank warning in yesterday’s minutes that oil prices have risen more than 20% from their mid-June lows, driving inflationary pressures.
The AUD/USD gained 0.3%. The NZD/USD climbed 0.1%.
That said, the RBA needs to weigh up inflationary worries with the fact that China’s slowdown will weigh on domestic growth.
The RBA barely mentioned China in the first half of this year but China’s recent property problems have seen China emerge as a greater growth concern. As a result, the RBA might not have the ability to continue to hike rates, meaning the AUD could continue to stay broadly stuck near lows.
China rates also key
Away from the Fed, key interest rates decisions are due from China, the UK and Japan over the next few days.
Today, the People’s Bank of China announces its key loan prime rate after last month delivering a smaller than expected rate cut.
On Thursday, the Bank of England decision is due, with markets looking for any sign that BoE is nearing an end to its rate hiking cycle.
Friday, markets are looking for the exact opposite signal from the Bank of Japan, after BoJ governor Kazuo Ueda said earlier in the month that incoming data might provide enough evidence by the end of the year for the central bank to begin to raise rates.
Greenback higher ahead of Fed
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 18 – 22 September
All times AEST
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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.
