Forex today was seeing a weaker dollar again despite a lift in yields as Fed speakers continued to hint at a dovish bias, and data dependency concerned about a deteriorating trade and economic backdrop.
The Federal Reserve will respond “as appropriate” to the risks posed by a global trade war and other recent developments, Fed Chairman Jerome Powell said on Tuesday in remarks that seemed to open the door to the possibility of a rate cut.
– Reuters reported earlier, quoting Fed’s governor Powell.
Other key points from Powell today
** Fed’s Powell says with economy growing, unemployment low, inflation low and stable, it’s right time to rethink long-run strategies.
** Powell sees much higher likelihood rates will fall to effective lower bound in a downturn.
** Powell says Fed takes seriously the risk that persistent inflation shortfalls could reduce inflation expectations.
** Powell says ‘dot-plot’ of Fed rate forecasts has distracted attention from how Fed will react to unexpected events.
** Powell says in times of uncertainty, median Fed rate forecast might best be thought of as ‘least unlikely’ outcome.
Analysts at Westpac explained that The US dollar was mostly softer against the G10, though net changes were modest.
- EUR/USD was choppy at times but eventually a touch higher at 1.1250.
- GBP/USD rose 0.3% to 1.2700, a one week high.
- USD/JPY rose from 107.90 to 108.36 before retracing to 108.15.
- AUD/USD extended yesterday’s rise from 0.6965 to 0.7004 in ragged fashion, gyrating on the headlines from RBA governor Lowe’s speech, where he reiterated the focus on unemployment and indicated another cut might be needed.
- NZD/USD similarly rose from 0.6580 to 0.6620.
- AUD/NZD eked a 1.0570 to 1.0608 range, with the high trading just after the RBA rate cut yesterday.
Key notes from Wall Street
Wall Street bounces back on dovish Fed rhetoric; DJIA closing the gap
Key events ahead:
“Australia’s Q1 GDP report (11:30am Syd/9:30am Sing/HK) poses the usual risk of a surprise, with the past year having produced both upside and downside misses. The median forecast in the Bloomberg survey has edged up to 0.5%qtr. Westpac remains on 0.6%qtr, 1.9%yr, but with risks to the downside. The arithmetic of our Q1 GDP forecast is: domestic demand +0.3%, inventories +0.04ppts and net exports +0.23ppts. As always, consumption is a wildcard, since the (very weak) retail sales report captures less than half of consumer spending,” the analysts at Westpac reported.
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