Previous Story
Long USD trades against AUD, NZD and EUR
Today we are looking at long USD trades on pullbacks against the AUD, NZD, and EUR. With yesterday’s hawkish Fed comments increasing the sentiment for a hike at the end of the year, and with the recent dovish comments from both the ECB and RBNZ increasing sentiment for additional easing, these look like good options. The poor CPI prints, and subsequent increase in sentiment for a RBA cut will likely see the greenback supported against the AUD as well.
Current Market Sentiment:
The highlight of yesterday’s NY session was the FOMC interest rate decision and statement where rates were left on hold as was widely expected, but the statement struck a more hawkish tone than anticipated. The Fed removed the sentences about global developments hindering growth and also remained upbeat on the economy, leaving the door open for a rate hike in December. The statement saw the USD boom across the board as sentiment for a rate hike this year received a boost. Fed fund futures is now pricing in a 43% probability of a 25 bps hike at the December meeting.
The RBNZ decided the “watch and wait” approach was “appropriate”, keeping rates steady at 2.75% as was widely expected. The central bank did suggested however, that it will likely cut interest rates again. Governor Graeme Wheeler stated that “some reduction in the OCR seems likely,” and that it “will continue to depend on the emerging flow of economic data”.
Governor Wheeler also warned that a continued strong Kiwi would increase the likelihood of the need for a rate cut because of it’s effects on import prices. “The exchange rate has been moving higher since September, which could, if sustained, dampen tradables sector activity and medium-term inflation,” and “This would require a lower interest-rate path than would otherwise be the case.”
During Asia, Australian import prices missed expectations for Q3 printing at 1.4% versus the expected 1.6%, and export prices came in flat for the quarter versus an expected 0.6% rise. This was not tier 1 data, and as expected, the AUD was relatively unaffected by the print.
Coming up in London we have the German Prelim CPI, German Unemployment, ad Spanish Flash CPI. Later during NY we will see the US Advance GDP. Take a look at my weekly news events overview here to learn more about these releases.
To get daily market insights from Jarratt Davis delivered to your inbox simply enter your name and email below:
The post Long USD trades against AUD, NZD and EUR appeared first on Jarratt Davis.
