AUD shifts lower as U.S Fed Reserve continues to taper

Australian Dollar:

The Australian Dollar maintained recent ranges throughout Wednesday as the currency struggled to break outside bounds between 0.8720 – 0.8820. Boosted in early trade the Aussie took advantage of   a risk on rally sparked by a sharp increase in Turkish interest rates. Turkey’s Central bank surprised markets by increasing the benchmark lending rate by 4.25% in a bid to stave off further dumping of the local unit (Lira). The threat of rapid currency depreciation amongst Emerging Markets has prompted swift action across the board as India and South Africa’s central Banks also tightened Monetary Policy while Argentina relaxed currency controls in a bid to attract high yield investors. The rally however was short lived as investor focus shifted to the US Federal Reserve’s policy announcement and forward tapering guidance forcing the AUD lower throughout European and early North American trade. The Fed decision to continue its $10billion dollar reduction of monthly stimuli was largely expected and with little change to Decembers policy announcement the impact was somewhat priced in and the AUD open marginally lower this morning trading at 0.8736 at time of writing.      

• We expect a range today of 0.8700 – 0.8820

New Zealand Dollar:

The New Zealand Dollar traded within a tight range for much of yesterday as the currency bounced between 0.8235 and 0.8300 ahead of this morning’s US Fed policy announcement and RBNZ rate decision. As expected the U.S Central Bank continued its current pace of stimulus reduction reducing monthly bond purchases by a further $10billion from $75b to $65b driving the Kiwi  toward the lower end of recent bounds reaching an overnight low of 0.8238. A brief rally back to 0.8268 has been cuckold as, at time of writing, the RBNZ has left the benchmark cash rate unchanged at 2.5%. With some market participants predicting a tightening of Monetary Policy the decision sent the NZD sharply lower bottoming out at 0.8182 before RBNZ Governor Wheeler confirmed “that while rates will remain on hold inflationary pressures are escalating and a rate hike is imminent if inflation is to be kept around the banks 2% target midpoint”. The validation of future rate hikes seems to have stemmed further runs on the Kiwi and we now swap hands at 0.8202.   

• We expect a range today of 0.8175 – 0.8300

Great British Pound:

The Pound remains relatively unchanged this morning as the Cable continues to trade between new levels of support (1.6525) and resistance (1.6600). Bank of England Governor Mark Carney hit the wires Wednesday and reiterated the need for lower interest rates commenting “Even though employment is growing and unemployment has fallen … the recovery has some way to run before it would be appropriate to consider moving away from the emergency setting of monetary policy”. The proclamation stifled any investor confidence in a change to current forward guidance policy and drove GBP toward intraday lows of 1.6525 before positions were corrected ahead of the US Fed policy announcement and we open this morning in the middle of recent ranges at 1.6554.     

• We expect a range today of 1.8925 – 1.9025

Majors:

The Greenback opens slightly stronger this morning as investors respond to the Fed’s decision to continue its current pace of stimulus reductions. In the announcement following the Central Banks two day policy meeting the Fed confirmed it will cut bond purchases by $10billion from $75b to $65b a month. The news came as little surprise to markets and helped stem the recent run on the Dollar against it Japanese counterpart. Recent uncertainty surrounding the stability of Emerging Market currencies in the face of continued U.S tapering has forced a flight to safety and the JPY as a safe haven asset. The U.S dollar has dropped dramatically in the last three weeks having peaked just above 105 the USD/JPY now trades some 3% lower at 102.20. EUR/USD remains relatively unchanged and continues to trade within a target range between 1.3600 and 1.37 as we open this morning bang in the middle at 1.3653. Focus now turns to US pending home sales and unemployment claims ahead of next week’s Non-Farm Payroll numbers and ECB rate statement.

Data releases

• AUD: HIA New Home Sales and Import Prices                
• NZD: Official Rate Decision and RBNZ Rate Statement
• JPY: Retail Sales
• GBP: Net Lending to Individuals, Mortgage Approvals and M4 Money Supply     
• EUR: Spanish Flash GDP, German Unemployment Change and Italian 10y Bond Auction
• USD: Advance GDP, Advance GDP Price Index, Unemployment Claims, Pending Home Sales and Natural Gas Storage