Much weaker than expected Australian CPI data triggered the biggest move in currency markets. The FOMC announcement came and went with little net currency reaction.
Overnight trading was quiet ahead of the FOMC announcement at 6am. Overall, there were subtle changes here and there to the Fed’s statement, but nothing really to change the policy outlook – the next move being data dependent.
On the domestic economy, the Fed added a comment that “labour market conditions have improved further”, but it also noted that “economic activity appears to have slowed”.
On inflation, the Fed removed the previous comment that inflation had picked up. The Fed removed the comment that “global economic and financial developments continue to pose risks” but added that it would closely monitor global economic and financial developments.
Thus, we are left waiting and watching the data for the Fed’s next move. There was currency volatility as the headlines came out, but as I write the USD TWI index is unchanged from pre-FOMC levels.
There was more currency action yesterday. The AUD plunged by over a cent and extended that loss overnight. following much weaker than expected CPI data. The CPI fell by 0.2% for the quarter, while the core measures also showed inflation tracking well below target.
The RBA’s trimmed mean measure rose by 1.7% yoy, well below the RBA’s 2.0% and the market’s 2.1%. This opened up the possibility of the RBA cutting rates next week and the AUD was slammed. It currently trades at 0.7580, down 2.2% for the day.
The weaker AUD spllied over into the NZD, which currently trades at 0.6850, down 0.8%. NZD/AUD blasted back up through the 0.90 handle to 0.9040, having traded at 0.8885 just before the CPI release.
Elsewhere, there have been little currency movements, with the FOMC announcement only resulting in some passing volatility. EUR, GBP and JPY are all within 0.2% of their previous day’s close.
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