Forex Analysis for Thursday 4th May 2017
Fed kept rates unchanged at 0.75%-1.00% as expected, with the decision made by unanimous vote. (Newswires)
– Fed stated growth slowdown in Q1 is likely to be transitory and that they still expect the economy to expand at a moderate pace.
– Fed said that the 12-month inflation is running close to its 2% goal and labour market continued to strengthen as growth slowed.
– Fed reiterated that risks to outlook appear roughly balanced and it expects economy to warrant gradual rate hikes.
– Fed did not signal any change to its balance sheet policy.
– The widely expected announcement from the Fed resulted into a fairly subdued immediate reaction across major US asset classes, although the USD gradually benefited and Tnotes were pressured in the minutes following the release as Fed Fund Rate Futures began to price in a 93% chance of a June hike vs. 69% the prior day given the Fed’s downplaying of lacklustre Q1 growth and confidence in the Labour market.
In the US, ADP Non-Farm Employment was on track at 177K and ISM Non-Manufacturing PMI beat expectation (57.5 vs 56.1).
RBA Governor Lowe said that the high cost of housing is a real issue for many and can have serious side effects, while he added that rates could be expected to increase overtime. Lowe also conducted a Q&A in which he commented that lower rates would contribute to imbalances in the system, but added did not rule out the possibility that rates could go lower at some point. (Newswires)
Macron seen to be winner in French election TV debate.
The market does not react wildly to the Fed announcement but takes some comfort form the statement that the recent GDP miss is transitory. Risk sentiment remains somewhere between neutral and on. The USD rises but US equities stay stubbornly consolidated. WTI falls to support at around USD47.6/bbl and the safe haven of gold drops to the 200MA. The Euro50 and the EUR itself seem buoyed by Macron’s good showing. The JPY weakens and breaks through the resistance seen since mid December last year. The CAD has an up day for the first time in a long time and the AUD drops on poor copper pricing and a bad Chinese manufacturing PMI.
UK Services PMI; ECB President Draghi speaks; BOC Gov Poloz speaks.
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