U.S. Session Forex Recap – Jan. 28, 2016

  • FOMC kept monetary policy unchanged as expected
  • Fed is “closely monitoring” global economic developments
  • U.S. new home sales up by 544K vs. 501K expected, 491K previous
  • U.S. crude oil inventories up by 8.4 million barrels vs. 3.8 million expected
  • Fonterra cut milk price forecasts and payouts
  • RBNZ kept interest rates on hold at 2.50% as expected
  • Japanese Dec retail sales down by 1.1% y/y vs. expected 0.1% gain

The folks over at the FOMC managed to spur additional forex volatility among the majors but the U.S. dollar eventually slid back to where it started.

Major Events:

FOMC decision – As expected, the U.S. central bank decided to keep interest rates on hold for the time being, reiterating that their tightening cycle would proceed at a gradual pace. In fact, their latest statement was pretty much a rehash of their previous one, except for the removal of the “balanced” assessment of the risks to their outlook.

Instead, FOMC policymakers noted that they are “closely monitoring global economic and financial developments and is assessing their implications” which basically suggests that officials are somewhat concerned about the slowdown in China and the oil price slump. On a more upbeat note, FOMC members also assured that the decline in import prices will dissipate and that the dollar’s appreciation might have a transitory effect.

RBNZ rate statement – RBNZ policymakers also thought it would be a good idea to sit on their hands for now, announcing that they’re keeping the benchmark rate unchanged at 2.50%. However, unlike the Fed which pointed out that price levels could soon recover, the New Zealand central bank was less optimistic as Governor Wheeler said that it might take longer for them to achieve their inflation target than previously expected.

“Some further policy easing may be required over the coming year to ensure that future average inflation settles near the middle of the target range,” he added. I don’t know about you, but that sounds like they’re keeping the door open for additional rate cuts!

Oil stockpiles up, prices stay up – Crude oil prices shrugged off the larger than expected buildup in stockpiles, as indicated by the latest U.S. inventories report from the Energy Information Administration. The report showed an increase of 8.4 million barrels, more than twice as much as the projected 3.8 million gain and the previous 4 million rise.

As it turns out, calls for an emergency OPEC meeting have been strengthening, with Iraq’s oil minister hinting that they’re willing to send an RSVP to Venezuela’s invite. For now, Iraq is saying that they’d agree to cut production only if other cartel members do so.

Fonterra cuts price and payout forecasts – New Zealand’s largest company and dairy exporter admitted that global economic conditions have been very challenging for the industry, as this has generated an imbalance between supply and demand.

With that, Fonterra downgraded their milk price forecast from N$4.60 to N$4.15 per kilogram this year. In addition, the company also lowered their projected cash payout from N$5.00-5.15 in November to N$4.50-4.55 per kilogram, translating to lower revenues for farmers and suppliers.

Major Currency Movers:

USD – Chop, chop! The Greenback initially had a positive reaction to the FOMC statement but quickly reversed course.

EUR/USD fell from 1.0900 to a low of 1.0860 before rallying to a high of 1.0915, GBP/USD slipped from a high of 1.4351 to a low of 1.4226, USD/JPY popped up to test the resistance at 119.00 then retreated to 118.42 soon after, and USD/CHF surged to 1.0189 before slipping to 1.0136.

NZD – The Kiwi got a one-two punch from the Fonterra downgrade and the dovish RBNZ statement, pushing it lower against most of its forex peers.

NZD/USD dropped like a rock from a high of .6535 to a low of .6418, NZD/JPY fell from 77.68 then dipped below the 76.00 major psychological support, AUD/NZD skyrocketed from the 1.0750 area to a high of 1.0915, and EUR/NZD climbed back above the 1.7000 mark.

Watch Out For:

  • 12:30 am GMT: Australian import prices q/q (-0.8% expected, +1.4% previous)

See more:

Asian Session Recap

London Session Recap

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