Aussie regains losses as US Fed adopts a dovish tone

Australian Dollar:

The Australian Dollar has regained the losses suffered in early week trade as the Fed Reserves FOMC statement took on a dovish tone. With minimal headline data available on the domestic docket the AUD traded within a 20 point range for much of the Australasian and European sessions as markets waited for further guidance from the US Central Bank. Fed Chair Janet Yellen quashed expectations of a possible early rate rise and reduced GDP growth forecasts forcing the greenback lower across the board. The Aussie opens this morning buying 0.9397 US cents as attentions turn to US data again with Philly manufacturing data and unemployment claims headlining the economic calendar.  

• We expect a range today between 0.9320 - 0.9420

New Zealand Dollar:

The Kiwi moved higher in overnight trade breaching 0.87 and approaching record highs not seen since 2011. Much like its antipodean cousin the NZD traded within a tight range during the domestic session as markets waited for the FOMC statement and economic projections following its 2 day policy meeting. Kiwi spiked higher as the US central bank lowered its GDP forecasts and long term rate projections indicating that monetary policy would remain on hold for a “considerable time”. Attention now turns to a domestic docket headlined by 1st quarter GDP growth leading into a North American session dominated by unemployment claims and Philly fed Manufacturing numbers. Strong growth should help the Kiwi maintain record highs as we move into the weekend.  

• We expect a range today between 0.8630 – 0.8780 

Great British Pound:

Sterling traded lower throughout early European trade as the release of MPC minutes revealed a unanimous decision to maintain the Central Banks accommodative stance. Given the hawkish nature of comments from BoE officials lately markets had expected a split in the official bank rate vote however it seems committee members need further evidence of economic progression before they consider raising rates. Dipping below 1.6950 the GBP recovered strongly and moved through European session highs as the Fed Reserve FOMC statement failed to meet investor expectations. Having regained losses against the greenback the Pound opens lower against its European, Australian and Kiwi counterparts as attention turns to retail sales numbers today for further signs of economic recovery.  

• We expect a range today between 1.8020 – 1.8200 

Majors:

The US dollar has relinquished ground to most major counterparts and key emerging market currencies overnight as the Federal Reserve adopts a dovish tone. After a string of positive data analysts were expecting a relatively upbeat FOMC with the possibility of an advanced guideline for monetary policy tightening. Analysts were disappointed. The Fed downgraded its forecast for economic growth through 2014 and lowered its projections for long term interest rates from 4% - 3.75%. Fed Chair Janet Yellen offered little to spark investor action as she adopted a neutral stance suggesting that while economic activity is rebounding and PCE inflation approaches the committee’s 2% target there is still an underutilisation in the labour force. It seems the Fed is committed to managing the recovery and reducing the pace of asset purchase while maintaining an accommodative Monetary Policy stance for a considerable time. Greenback fell below 102.00 Japanese Yen while EUR/USD is higher swapping hands at 1.3588. Markets now shift their attention to key manufacturing data and unemployment claims for further signs of economic recovery as drivers in USD direction. 

Data releases

• AUD: RBA Bulletin
• NZD: GDP q/q
• JPY: All Industries Activity
• GBP: Retail Sales, CBI Industrial Order Expectations and MPC Member McCafferty Speaks
• EUR: Eurogroup Meetings
• USD: Unemployment Claims, Philly Fed Manufacturing Index, CB Leading Index and Natural Gas Storage.