Fed hawkish, sparking Dollar strength

Yesterday’s markets

29th October 2015

  • US Goods Trade Balance: -58.6B
  • US Crude Oil Inventories: 3.4M
  • US FOMC Statement
  • US Federal Funds Rate: <0.25%
  • NZD Official Cash Rate: 2.75%
  • RBNZ Rate Statement

The Federal Reserve sparked volatility last night as they addressed the market in a surprisingly hawkish tone. Although the Fed did not raise interest rates at last night’s meeting they did signal that there is a possibility of “lift off” this December, against market expectations of Q2 2016. Policy makers said they will consider tightening policy at their next meeting in December, without making a commitment to act this year. The Fed also removed a line from September’s statement saying that global economic and financial developments “may restrain economic activity somewhat”.

However, as expected, the FOMC voted to maintain its zero interest rate policy, due to weakness in exports and soft inflation as reasons to keep rates at record lows. The vote was 9-1, with dissent from the Fed hawk Jeffrey Lacker, who wanted to see the Fed enact a quarter point hike.

Today’s markets

28th October 2015

  • German Prelim CPI y/y
  • Spanish Flash CPI y/y
  • German Unemployment Change
  • UK Net Lending to Individuals
  • US Advance GDP q/q
  • US Unemployment Claims
  • NZD ANZ Business Confidence
  • JPY Monetary Policy Statement

It is likely that the market will still be digesting the rhetoric from last night’s FOMC statement with price action readjusting accordingly. However, the markets will have to be on its toes once again as the release of the US GDP is scheduled this afternoon. US growth is expected to have declined but still remain healthy and could have an impact on the rate debate. Meanwhile, the German unemployment and UK lending numbers are due for release.