Article Highlights

  • FOMC kept interest rates unchanged at <0.50%
  • FOMC voted 7-3 to keep policy on hold
  • Fed sees labor conditions strengthening “somewhat further”
  • FOMC: Near-term risks to outlook roughly balanced
  • Yellen: Seeing “definite” evidence that economy is picking up
  • Yellen expects a rate hike for the year if jobs trajectory continues
  • U.S. crude oil inventories down by 6.2 million barrels
  • RBNZ kept rates on hold at 2.00% as expected
  • RBNZ: Trade-weighted exchange rate is higher than August’s level
  • RBNZ: Further policy easing required
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All eyes and ears were on the FOMC announcement, during which most policymakers voted to stay put while a few dissented. Kiwi traders also had their fill of volatility when the RBNZ had its say.

Major Events:

FOMC statement – Rate hike fans were disappointed to find out that the FOMC decided to sit on its hands for now but still kept their hopes up for a December hike as three committee members voted to tighten. Rosengren and Mester joined formerly lone wolf George in calling for a rate hike this time, reflecting a shift towards a more hawkish FOMC stance.

According to the official statement, the committee judged that near-term risks to outlook are “roughly balanced” and that labor conditions are strengthening “somewhat further.” They also pointed to growth in household spending but warned that business investment remained soft.

“The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives,” the FOMC statement concluded. In other words, unless data takes a turn for the worse in the next few months, the Fed is likely to stay on track for a December hike.

Fed head Yellen’s presser – The dollar party didn’t stop after the FOMC had its say, as head honcho Janet Yellen still had a press conference that followed. It does appear that the Fed Chairperson is also feeling the hawkish vibes since she started off by saying that she’s seeing “definite” evidence that the economy is picking up.

In response to questions on when the Fed might hike rates, she did say that she’s expecting a rate hike this year if the U.S. economy continues with its current progress in the labor market. She also emphasized that there’s less disagreement among the committee than it seems but added that they don’t suffer from groupthink. She also noted that every meeting is live even if it doesn’t come with a presser, which suggests that a November hike could be possible also.

RBNZ rate decision – After the FOMC dust settled, the folks from the RBNZ took their turn in announcing their decision to keep rates on hold as well. In their official statement, policymakers noted that growth is still below trend and that the Kiwi’s exchange rate remains high, weighing on export activity.

Also, RBNZ Governor Wheeler and his fellow policymakers acknowledged that inflationary pressures remain weak. They even projected that price levels could further weaken in the current quarter, keeping the door open for more easing to ensure that inflation climbs back close to their target.

Major Market Movers:

USD – Dollar bulls were visibly disappointed to see the Fed sitting on its hands again, but the losses were limited since December hike expectations remained.

USD/JPY slipped from 100.93 to 100.20, EUR/USD popped up from 1.1150 to a high of 1.1197, GBP/USD bounced off the 1.3000 handle to a high of 1.3047, USD/CHF dropped from .9756 to .9720, and AUD/USD climbed from .7600 to .7624.

NZD – The Kiwi gave up some ground when the RBNZ dropped dovish hints, but the currency ended mostly unchanged against its peers.

NZD/USD dipped to a low of .7315 then climbed back to  .7370, NZD/JPY bounced off the 73.55 area to 73.95, GBP/NZD retreated to a high of 1.7877 then fell back to 1.7719, and NZD/CAD dipped to a low of .9606.

Watch Out For:

  • Japanese banks closed for the holiday
  • 12:00 am GMT: RBA Governor Lowe’s testimony 

See also:

London Session Recap

Asian Session Recap

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