USD falls sharply as Fed hike expectations ratcheted down; dairy auction does little to influence NZD

By Kymberly Martin

Ahead of this morning’s US FOMC meeting, in the backdrop of improved risk appetite, the USD traded lower and the AUD and NZD outperformed. The moves were extended after the FOMC’s announcement.

The FOMC’s message was relatively dovish as was to be expected. The USD fell sharply, as Fed rate hike expectations were ratcheted down. This gave a boost to all of its peers.

The USD/JPY has touched its lowest level since October 2014. The Bank of Japan meets this afternoon. It may be too soon to expect any further policy announcements. However, the Bank’s job of meeting its 2% inflation target becomes increasingly difficult the longer global risk aversion contributes to a stronger JPY.

The NZD/USD traded a steady path higher from early yesterday afternoon. The latest GDT dairy auction, in the early hours of this morning failed to meaningfully dent its path. The auction showed average dairy prices unchanged from the last event. Immediately following the US FOMC meeting the NZD/USD briefly surged above 0.7070. However, it has subsequently returned to trade around 0.7050.

The AUD/USD was also a beneficiary of generally improved market sentiment overnight and the Fed’s message early this morning. It now trades at 0.7420.

The NZD/AUD has continued its stepped path lower of the past few days. From its post RBNZ meeting highs of last week, above 0.9600, it now trades at 0.9500. This is still a touch above where we see fundamental ‘fair value’.

However, the near-term prospects for the cross will likely be determined by today’s two key data points; NZ Q1 GDP and the AU employment report. We see some potential for disappointment on the NZ data, while our NAB colleagues expect the AU report to, at least, meet consensus expectations.

In the absence of any high profile headlines on the UK referendum last night, the GBP/USD managed to strengthen against the weak USD. It traded up from 1.4100, to 1.4200, ahead of the US FOMC meeting. It gained little further advantage from the meeting. Tonight the Bank of England will meet. No change of policy is expected. The market may be looking for thinly veiled statements from the BoE, pointing to the ‘risks’ to the economy if the UK votes to leave the EU next week.

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Daily exchange rates

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