Intraday Market Thoughts

Fed Waits, RBNZ Shifts

by Adam Button
Jan 28, 2015 23:49

The Fed touched on softer short-term inflation but better growth in a statement that had something for everything but nothing definitive or surprising. On the day, the Australian dollar was the top performer while the loonie lagged to a fresh 5-year low. The RBNZ followed up the Fed decision by shifting to neutral and flexing its jawbone.  Our Premium subscribers who got on those 2 Premium shorts in AUDJPY, issued on Monday are realizing 200 pips on the 1st trade and 130 pips on the 2nd trade, which was filled after last night's release of higher than expected Aussie CPI temporary lifted the pair.

The Fed upgraded its economic assessment to 'solid' from 'moderate' but lowered its view on inflation, saying it has declined and may decline further. The key caveat was that officials remain confident in medium-term inflation which is a signal they believe low inflation is a one-off effect due to oil and that stronger inflation pressures are in the pipeline because of jobs growth.

The market wavered after the release. In general, the US dollar climbed against the commodity currencies while slipping against the yen and holding against EUR and GBP. The Fed is in 'wait and see' mode so we will await economic data and Fed comments in the coming weeks to see if the 'patient' view on liftoff will remain.

The Fed refrained from mentioning the US dollar as a source of downward pressure on inflation but if corporations continue to refer to FX headwinds, that may change in March. It's also something we'll look for in the FOMC minutes.

The Fed was followed by the RBNZ an hour later. Governor Wheeler said rates will be on hold for longer and that the next move could be higher or lower and with that he completely removed the hawkish bias. He called the NZD rate unjustifiably, unsustainably high. It's fresh rhetoric but part of a long jawboning campaign that's been sprinkled with intervention. His comments had the desired effect and sent NZD down 60 pips to a fresh cycle low.

The RBNZ comments helped to drag down the Australian dollar and left it nearly unchanged on the day despite the higher CPI reading. That's a bearish signal.

Up next, the focus shifts to Japan with retail sales data due at 2350 GMT. The market is looking for a 0.9% y/y rise but it's unlikely to move USD/JPY, which is testing the downside of its recent range at 117.40.

Act Exp Prev GMT
National CPI (DEC) (y/y)
2.4% Jan 29 23:30
National CPI Ex Food, Energy (DEC) (y/y)
2.1% Jan 29 23:30
National CPI Ex-Fresh Food (DEC) (y/y)
2.6% 2.7% Jan 29 23:30
Tokyo CPI (JAN) (y/y)
2.1% Jan 29 23:30
Tokyo CPI ex Food, Energy (JAN) (y/y)
1.8% Jan 29 23:30
Tokyo CPI ex Fresh Food (JAN) (y/y)
2.2% 2.3% Jan 29 23:30
Consumer Price Index (Q4) (q/q)
0.2% 0.3% 0.5% Jan 28 0:30
RBA trimmed mean CPI (Q4) (q/q)
0.7% 0.5% 0.3% Jan 28 0:30
Consumer Price Index (Q4) (y/y)
1.7% 1.8% 2.3% Jan 28 0:30
RBA trimmed mean CPI (Q4) (y/y)
2.2% 2.2% 2.4% Jan 28 0:30

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