Market sees roadblock in way of Fed Rate hikes; USD moves lower

AUD / USD

Expected Range: 0.7630 – 0.7730

The Australian Dollar drifted lower from Wednesdays open to an intraday low of 0.7667 as Wage growth continues to disappoint. Reserve Bank governor Philip Lowe suggested in his Australia -Canada Summit speech that he does not expect wage growth to continue lower. The seasonally adjusted reading of 0.5% for the December quarter was on par with market expectations. Construction work data also failed to disappoint, falling 0.2% for the last quarter 2016, but had little impact on the local currency. Spirits were restored shortly after as Chinese home prices continued to rise, boosting the Australian dollar, hitting eventual highs of 0.7697 to close the Asian session. The Federal Reserve minutes overnight failed to give any hints as to when the next interest rate increase might be with the rhetoric wording of “fairly soon” producing US dollar weakness. The Aussie continues to test major resistance at current levels and opens at 0.7710 ahead of the local Private Capital Expenditures data this morning.

NZD / USD

Expected Range: 0.7120 – 0.7240

Despite a strong U.S existing Home Sales print for January of 5.69 million which was well above expectations of 5.55 million the NZD/USD had little reaction to the data as it eagerly anticipated the release of the US Federal minutes. The minutes of the previous meeting showed that a strong currency could hurt the US economy and that officials said it may be appropriate to raise interest rates again ‘fairly soon’ should jobs and inflation data come in line with expectations. As soon as news hit the wires the pair moved from 0.7130 to 0.7190 and has consolidated at this level. 

GBP / AUD

Expected Range: 1.6050 – 1.6300

The Great British Pound weakened against the Greenback as UK fourth quarter GDP data was revised up by 0.1pp to 0.7% which further confirmed a more resilient economy following the EU referendum. The Office for National Statistics reported strong consumer spending and services output but was offset by a fall in fixed investment spending. Following the report, the Cable fell from 1.2470 to 1.2440 and touched an eventual low of 1.2410. With the economic calendar light for the reminder of the week the pair will look offshore for direction. GBP/AUD marginally lower at 1.6145 and GBP/NZD at 1.7309 at the time of writing. 

USD, EUR, JPY

The U.S Dollar edged lower this morning despite a relatively hawkish FOMC and widespread European political uncertainty. The Greenback rallied against the 19 nation combined unit moving through 1.05 as the Euro touched intraday lows at 1.0495 following heightened uncertainty in the race for the French Presidency. Nationalist Marine le Penn continues to gather momentum in the polls forcing investors to manage Euro expectations and weighing heavily on the currency. Bouncing off six week lows the Euro found support when Centrist Francois Bayrou offered a coalition with leading independent candidate Emmanuel Macron damaging Le Penn chances of an upset win. The USD relinquished hard fought gains and suffered a deeper sell off as markets reacted to the Fed and FOMC’s January Minutes. Despite a relatively Hawkish undertone where in Fed committee members suggested “a rate hike was appropriate fairly soon” investors looked to possible road blocks hampering the Fed’s path to tighter Monetary Policy. Continues downside inflation risks, political uncertainty and fiscal policy ambiguity stand in front of FOMC and forced a USD sell off. Moving back toward 113 JPY and 1.0570 Euro attentions now turn a raft of macroeconomic items and continuing French and Dutch political developments for direction through trade on Thursday.