Fed leaves rates on hold but opens window for December hike; brave new objectives outlined by BoJ; volatile trading in NZD

By Kymberly Martin

After a fair amount of drama over the past 24-hours the USD is a little weaker and the JPY has outperformed.

After a volatile period of trading, the NZD/USD trades at 0.7300 ahead of the RBNZ announcement this morning.

The Bank of Japan made its much awaited announcement in the late afternoon. The details of new policy initiatives outlined some brave new objectives, though achieving them may prove more challenging. The JPY initially declined on the suggestions of commitment to further easing, but ultimately appeared unconvinced and rebounded. The USD/JPY declined from early evening highs around 102.80 to trade at 100.50 currently. The US FOMC’s announcement this morning had little enduring impact on the JPY.

The US FOMC declined to hike rates today, as widely expected. However, it seems to be leaving the option of a December hike wide open. But prospects for the path of the Fed funds rate over the longer-term have again been inched down. After an initial bout of volatility the USD index now trades at a similar level as prior to the meeting, though a little lower than yesterday morning.

Most currencies, including the NZD, experienced volatile trading immediately following the US FOMC announcement, but now trade not too far from pre-meeting levels.

The NZD/USD dipped last evening immediately after the BoJ’s announcement, as the USD initially strengthened. However, later in the evening as the USD declined against the JPY the NZD/USD pushed on up to 0.7350. It now trades at 0.7330 ahead of the RBNZ’s meeting at 9am (NZT).

We continue to suspect the RBNZ’s aim at today’s meeting will be to leave market pricing for the OCR relatively unchanged.

If successful this meeting may prove rather uneventful for the NZD. Critical, in our view, will be whether the summary line from its August MPS remains unaltered i.e. “further easing will be required to ensure that future inflation settles near the middle of the target range”. If the word “will” is replaced with “may”, we suspect the market may see the change as fairly hawkish and the NZD/USD will bounce.

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Daily exchange rates

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