The USD weakened modestly through a quiet Friday session, ahead of the September FOMC decision at this week’s end. EUR outperformed on little fresh news.
NZD and AUD have been little affected by mixed Chinese data released over the weekend.
The broad Bloomberg Dollar Spot Index sank 0.3% on Friday, courtesy of EUR continuing to add to recent gains. EUR/USD rose every day last week, pushing back above its 200-day moving average. ECB President Draghi will not be pleased with this outcome, so soon after suggesting that the ECB’s easing programme could be expanded.
NZD posted a respectable 0.4% gain up to return above 0.63. This looked largely a result of profit-taking on short NZD positions against USD and AUD. We’d look for 0.6370 to provide a cap for NZD/USD today.
China’s mixed bag of economic news from the weekend failed to inspire much of a reaction this morning, despite headlines abound of fixed asset investment falling to the lowest levels since 2000. A better-than-expected retail sales number helped provide an offset.
It’s an important week for markets, with a real possibility that US policy rates might rise for the first time since 2006. Investors are clearly sceptical, with the market pricing the odds of a lift-off at less than one-third. Analysts are effectively evenly split on the decision. We expect the FOMC to wait until December.
Even if rates stay on hold on Friday morning, the Fed will still need to upgrade its language (and forecasts) for US economic activity. Unemployment and growth have handily beaten the previous set of forecasts, published in June. At 5.1%, the unemployment rate already sits in the 5.0% - 5.2% range the FOMC considers to be ‘full employment’.
In light of an improved economy (and the threshold ‘some further improvement’ in the labour market likely already met), the FOMC will have some explaining to do if it decides to keep rates on hold. It will not publicly admit to balking in the face of equity market volatility. Global growth concerns might feature, even though there has been little evidence of a slowdown, yet. Most likely, officials will espouse concern about how depressed inflation remains, despite strong activity growth.
There will be a lot to digest on Friday, with the ‘dot points’ likely to attract the most attention. The extent of downward revision in those (or lack thereof) will probably determine the scale of volatility on the day.
Ahead of that, we’ll be watching the RBA Minutes (Tue), the dairy auction (Wed am), and the local Q2 current account and GDP reports (Wed and Thu respectively).
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Raiko Shareef is on the BNZ Research team. All its research is available here.
1 Comments
Most likely, officials will espouse concern about how depressed inflation remains, despite strong activity growth.
Translating GDP excellence to GDI torpidity is tortuous.
GDP Might Have Been Almost 4% In Q2, But GDI of Just 0.6% Has The Quite Damning Weight Of Revisions
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