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US Dollar, Top Currencies Shift Focus to Fed Hike Implementation

US Dollar, Top Currencies Shift Focus to Fed Hike Implementation

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Aussie, Kiwi Dollars Underperform as US Dollar Gains After Fed Rate Hike
  • In-Line FOMC Outcome Hints Near-Term USD Advance May Prove Fleeting
  • Currency Markets Set to Shift Focus to Fed Tightening Implementation Effort

The Australian and New Zealand Dollars underperformed relative to their G10 counterparts as the US Dollar pushed broadly higher following the FOMC monetary policy announcement in overnight trade. Chair Yellen and company issued the first post-QE interest rate hike and signaled that subsequent tightening will be cautious and shallow.

The outcome registered broadly in line with consensus forecasts. Indeed, the breakout of risk aversion would have probably materialized if investors judged the Fed’s rhetoric as hawkish. This was clearly not the case. Indeed, Asian bourses are mostly following Wall Street upward. On balance, this means the greenback’s overnight advance may represent a surface-level reaction that ultimately struggles for follow-through, at least in the near term.

Looking ahead, a relatively quiet economic calendar on the European front will see investors focused on implementation of the Fed’s new policy regime. The Fed Funds rate (FFR) will need to be brought upward from 15bps, the Wednesday close, and into the new 25-50bps target range.

To this effect, the Fed raised the interest rate on reserves to 50bps and authorized the Open Markets Desk to conduct effectively unlimited reverse repo operations at 25bps, with the only constraint being the supply of Treasury securities that the Fed’s traders have on hand. Markets will monitor the central bank’s ability to deliver tightening through this mechanism, tracking its impact on borrowing costs around the financial markets.

If the removal of accommodation proves particularly abrupt, a latent risk-averse response to the Fed’s announcement may yet materialize. That would bode ill for the Aussie and Kiwi Dollars while boosting the anti-risk Euro and Japanese Yen. Alternatively, the opposite dynamic may materialize if the Fed struggles to bring FFR upward as intended.

Gauge Trends and Spot Reversals in the Major Currencies with DailyFX SSI

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

GDP SA (QoQ) (3Q)

0.9%

0.8%

0.3%

21:45

NZD

GDP (YoY) (3Q)

2.3%

2.3%

2.4%

23:50

JPY

Trade Balance (¥) (NOV)

-379.7B

-449.7B

108.3B

23:50

JPY

Trade Balance Adjusted (¥) (NOV)

-3.3B

-206.7B

-173.0B

23:50

JPY

Exports (YoY) (NOV)

-3.3%

-1.6%

-2.2%

23:50

JPY

Imports (YoY) (NOV)

-10.2%

-7.3%

-13.4%

01:57

AUD

RBA FX Transactions Government (NOV)

-517M

-

-579M

01:57

AUD

RBA FX Transactions Market (NOV)

485M

-

516M

01:58

AUD

RBA FX Transactions Other (NOV)

39M

-

83M

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

06:45

CHF

SECO December 2015 Economic Forecasts

-

-

Low

08:00

CHF

KOF Institute Winter Economic Forecast

-

-

Low

09:00

EUR

German IFO Business Climate (DEC)

109.0

109.0

Medium

09:00

EUR

German IFO Current Assessment (DEC)

113.4

113.4

Medium

09:00

EUR

German IFO Expectations (DEC)

105.0

104.7

Medium

09:00

EUR

ECB Publishes Economic Bulletin

-

-

Low

09:30

GBP

Retail Sales Ex Auto Fuel (MoM) (NOV)

0.5%

-0.9%

Medium

09:30

GBP

Retail Sales Ex Auto Fuel (YoY) (NOV)

2.2%

3.0%

Medium

09:30

GBP

Retail Sales Inc Auto Fuel (MoM) (NOV)

0.6%

-0.6%

Medium

09:30

GBP

Retail Sales Inc Auto Fuel (YoY) (NOV)

3.0%

3.8%

Medium

10:00

EUR

Eurozone Construction Output (MoM) (OCT)

-

-0.4%

Low

10:00

EUR

Eurozone Construction Output (YoY) (OCT)

-

1.8%

Low

10:00

EUR

Eurozone Labour Costs (YoY) (3Q)

-

1.6%

Low

11:00

GBP

CBI Trends Total Orders (DEC)

-10

-11

Low

11:00

GBP

CBI Trends Selling Prices (DEC)

-

-2

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.0691

1.0814

1.0863

1.0937

1.0986

1.106

1.1183

GBP/USD

1.4745

1.4883

1.4944

1.5021

1.5082

1.5159

1.5297

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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