HiFX morning Update, September 27 2018

NZDUSD 0.6657 0.1%
NZDEUR 0.5662 0.2%
NZDGBP 0.5053 0.2%
NZDJPY 74.98 -0.1%
NZDAUD 0.9163 -0.1%
NZDCAD 0.8658 0.6%
GBPNZD 1.9790 -0.2%

The NZDUSD opens at higher at 0.6657 this morning.

It’s all about the US Fed this morning.

As expected, the Fed raised interest rates by 0.25%, to a 2.00-2.25% range, and the USD ultimately weakened by a modest amount.

The NZDUSD traded in a 40 point range in reaction to the Fed rate decision, ahead of the RBNZ’s own interest rate decision at 9am, followed by a 10am press conference. The OCR (official cash rate) will remain at 1.75% - most interest will be on the press conference to understand the RBNZ’s current thinking on the likely future path and timing of NZ interest rates.

The key points from the US Fed decision and Chairman Powell’s press conference are:

Gradual return to normal interest rates helping to sustain US Economy
Overall US growth outlook remains favourable, boosted by fiscal stimulus
Expects the job market to remain strong
Expects inflation to remain near 2 percent on a sustained basis
Removal of 'accommodative' in statement is a sign that monetary policy is proceeding in line with expectations
Gradual increase in rates allows Fed to carefully watch incoming data to see how it is processing higher rates
Does not consider political factors in deciding policy
Forecasts on inflation based on perception that it is not responding as much to less slack in the labour market
Business contacts around country showing rising chorus of concern about trade tensions
Effects of trade tensions are still relatively small
He worries where trade tensions are going in the longer run
If there are widespread tariffs, a more protectionist world will be bad for US & global economy
It is a 'particularly bright moment' for the US economy
Does not see inflation surprising to the upside
He thinks monetary policy is still accommodative
The USD$ has only partly recovered the decline it had in 2017
Global equity markets were higher on the day (apart from in the US) - Dow -0.4%, S&P 500 -0.4%, FTSE +0.1%, DAX +0.1%, CAC +0.6%, Nikkei +0.4%, Shanghai -0.6%.

Gold prices are fell 0.5% to USD$1,195 an ounce, while WTI Crude Oil prices were dropped 0.8% at US$71.63 per barrel.

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