Fed meeting and major tech earnings on deck

US equity markets extended their rally on Tuesday, with major benchmarks reaching fresh all-time highs despite narrow breadth. Technology stocks, buoyed by sustained AI optimism, led the advance. The S&P 500 rose 0.2% to 6,890, while the Nasdaq Composite gained 0.8% to 23,827, and the Dow Jones Industrial Average climbed 0.3% to 47,706.

Key market drivers on the docket today include updates from the Fed and the BoC, both of which are widely forecast to lower their overnight policy rates. In the equity space, several tech giants will also release earnings after the market closes today, including Alphabet (GOOG), Meta Platforms (META), and Microsoft (MSFT), followed by Amazon (AMZN) and Apple (AAPL) tomorrow. Given that these companies, combined, account for about 25% of the S&P 500's market cap, their earnings will be closely watched. Adding to the positive sentiment, US-China trade tensions continue to ease, with Trump hinting towards potential tariff reductions ahead of his Thursday meeting with Chinese President Xi Jinping.

Hotter-than-expected Aussie inflation fuels AUD bid

Overnight, we saw September Australian inflation data come in HOT; all key measures beat expectations and sent the AUD/NZD cross northbound. For those scalping out of this event that missed the initial spike higher, a retest of breached M5 resistance around NZ$1.1405 played out very nicely (see below). These are the setups worth staying up for!

Fed meeting eyed; language will be important

Markets are fully pricing in a 25 bp Fed rate cut later today, a move that would bring the Fed funds target rate to 3.75% - 4.00%.

The rate cut itself is unlikely to move the market’s needle much, as it will not be new information. However, the central bank’s communication regarding the future of policy easing or the mention of winding down QT could elevate market volatility. Speculation has grown concerning the end of QT following comments from Fed Chair Powell a few weeks ago.

With money markets fully pricing in another 25-bp rate cut in December and nearly two more reductions by mid-2026, anything suggesting we may not get that could trigger strong moves higher in US yields and the USD, while weighing on Stocks and Gold. As shown in the daily chart below, the latter has recently caught a moderate bid in early trading today after finding support from US$3,886. Should the yellow metal take out resistance from US$4,012, follow-through buying to resistance from US$4,245 could be on the table.

BoC also expected to cut rates

Unlike the Fed, which I believe is a done deal regarding its rate cut, the BoC is more nuanced.

Supporting a rate cut by 25 bps to 2.25% from the BoC today – which would hit the lower boundary of the nominal neutral range – we have seen BoC Governor Tiff Macklem downplaying September’s job growth. He has a point here; despite the Canadian economy adding 60,400 jobs, there were more than 100,000 job losses between July and August. Macklem also described the job market as ‘soft’ and highlighted that unemployment has increased to 7.1% this year, from 6.6%.

Inflation is also in a tricky position. September CPI inflation came in higher at the headline YY level (2.4% versus 1.9% in August), with the BoC’s preferred measures – CPI median and trim – also ticking higher to just north of the central bank’s inflation target band of 1% - 3%. However, I do not believe this will stop the BoC from cutting rates today, as the three-month average of the YY headline measure remains around 2.0%.

I think today’s decision comes down to the BoC’s communication. A cut is unlikely to move the CAD much, given it is largely priced in, but a reduction accompanied by dovish comments could weigh on the currency. On the other hand, if forward guidance indicates the central bank could be on hold following today’s rate cut, this may be negative for the CAD.