Fed keeping options open

July 29, 2015

The two-day FOMC meeting concludes today with the focus on the statement released at 18:00 GMT. There is no real anticipation that policy will be changed, but the focus will be on the extent to which the statement indicates a tightening to come and possibly as early as September. Bear in mind that when the Fed dropped the phrase “considerable period” (in relation to how long rates will be kept low) back in January of this year, they were stepping back from offering more structured forward guidance. As such, it would be surprising if they offered specific guidance indicated a near-term move, especially given the recent developments in global stock markets. The dollar has been in retreat in recent sessions against selected majors, but still gaining vs. most emerging market currencies.

The overnight session has been relatively subdued. We are seeing the kiwi higher on the back of the latest comments from RBNZ Governor Wheeler, who suggested the pace of easing would be more subdued than the market was anticipating. This allowed the kiwi to move back above the 0.67 level, with AUDNZD briefly touching the 1.09 level. As with the RBA in Australia, he continues to believe his currency is overvalued, but the markets currently choosing to brush this view under the carpet. We’ve seen some stability in Chinese stocks overnight, which has supported a more stable tone to stock markets in Asia. The dollar’s more recent downward reversal against the commodity currencies has also continued, USDCAD moving back below the 1.30 level, whilst the Aussie has recovered from the year’s low made earlier in the week at 0.7257.

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