The USD has drifted a little lower over the past 24-hours. European currencies have outperformed whilst the AUD has underperformed.
After the USD was catapulted higher yesterday morning on the US FOMC statement, it has subsequently drifted lower. Although the USD experienced a bit of volatility around the release of the soft US Q3 GDP number early this morning, this was not the primary reason for the softer tone in the USD. It seemed to just be taking a breath after its surge higher yesterday morning. The USD index remains 0.8% above its pre-US FOMC level.
US GDP growth slumped sharply in Q3, as expected, to just 1.4% from 3.9% previously. However, this was largely due to a significant drag from inventories in the quarter. Growth in final sales to domestic purchases remained solid at 2.9%. This sets the economy up for steady, if unspectacular growth, in the current quarter.
More important for the Fed’s decision on whether to hike at its next meeting will be the next two employment and inflation reports. With respect to the latter, look out for the release of the US Sept PCE deflator (the Fed’s preferred inflation measure) tonight.
The JPY was boosted early yesterday afternoon by data showing much stronger than expected JP industrial production in Sept. However, the USD/JPY has subsequently drifted back to its previously level around 121.10, ahead of today’s meeting of the Bank of Japan. We believe it is probably too early to look for action from the Bank at this meeting. However, similar to the ECB, we anticipate that the BoJ may deliver further easing in the months ahead, as it struggles to achieve its inflation target under its current quantitative easing programme.
The AUD/USD gapped lower on the US FOMC announcement yesterday morning and has not really recovered. It has drifted a little lower in the early hours of this morning to trade at 0.7080 currently.
The NZD/USD was equally damaged after the US FOMC statement. However, it regained most of its losses after the RBNZ failed to deliver a rate cut yesterday morning. Subsequently, the NZD/USD has traded a fairly wide range between 0.6650 and 0.6710, currently sitting just below 0.6690.
The NZD/AUD has traded something of a roller coaster over the past 24-hours. Having briefly dipped toward 0.9360 on a couple of occasions, it now trades back at 0.9450. Our medium-term view is for NZD/AUD to weaken. This is aligned with our core view that the RBNZ delivers a further rate while the RBA is more likely to keep its cash rate unchanged, against market expectations for 45 bps of RBA cuts by mid next year. We see the cross trading back down to the 0.8800 level in the months ahead.
For today, look out for the ANZ NZ business survey for the latest barometer of how confidence and activity in this sector is faring.
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Kymberly Martin is on the BNZ Research team. All its research is available here.