Equities trade lower but markets generally remain unconvinced of imminent rate hike; tumultuous night for NZD/GBP

By Kymberly Martin

After yesterday morning’s large post-FOMC moves, currencies have mostly consolidated over the past 24-hours. However, the JPY has traded a bit higher, whilst the CAD and NOK have followed the oil price lower.

European and US equity markets continued their post-US FOMC sell-off overnight. European credit spread proxies have also widened.

The US Federal Reserve will want to avoid getting itself into the bind it faced earlier in the year. Then, its intention to raise rates helped spook the equity market, with the sharp fall in the equity market then spooking the Fed into inaction.

For now, the market remains unconvinced of an imminent Fed hike, despite yesterday’s Minutes and comments by Fed officials overnight.

If the market increases expectations for Fed hikes, the USD could have a lot further to run. Overnight however, it simply consolidated after yesterday morning’s gap higher. The USD index sits at 95.30 this morning, still well below December highs above 100.00.

The GBP/USD made evening gains. Still supported by recent EU referendum poll results, the GBP/USD was boosted by the release of a stronger-than-expected UK retail sales report. From 1.4580 it soon found itself above 1.4660 before returning to trade at 1.4620 this morning.

The AUD/USD trades at a similar level to yesterday morning. The only surprise from yesterday’s AU employment report was that it didn’t surprise. It was a solid report, close to expectation. The AUD/USD showed limited reaction. It traded down to early morning lows near 0.7180 before returning to trade around 0.7230 currently.

After yesterday morning’s post-US FOMC plunge the NZD/USD has traded a fairly tight range between 0.6720 and 0.6760. It sits at 0.6750 this morning. Near-term resistance is eyed approaching 0.6850 while support remains at the 200-day moving average of 0.6650.

On the crosses, the NZD/GBP experienced a bit of a tumultuous night. The cross initially fell sharply on the release of the UK retail sales report, before recovering some composure. However, the push higher in the GBP/USD in recent weeks has taken its toll on the cross. From early-May highs above 0.4900, the NZD/GBP cross now trades at 0.4620, levels last seen in February.

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