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US Dollar May Rise as Fed Leaves 2016 Rates Outlook Unchanged

US Dollar May Rise as Fed Leaves 2016 Rates Outlook Unchanged

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Yen declines, Pound corrects higher as Asian shares digest “Brexit” fears
  • US Dollar may rise if Fed economic and rates forecasts hold unchanged
  • Status-quo FOMC posture may trigger risk aversion, sink commodity FX

The Yen underperformed in overnight trade as Asian stocks corrected higher following four consecutive days of losses that brought prices to a three-week low. The cautiously risk-on mood undermined demand for the anti-risk Japanese unit while boosting the British Pound, underscoring the centrality of “Brexit” worries in driving the slump in sentiment since late last week.

Looking ahead, all eyes are on the Federal Reserve monetary policy announcement. The central bank will unveil an updated set of economic and interest-rate forecasts in addition to its regular post-meeting statement and Chair Janet Yellen will hold a press conference. Priced-in expectations implied in Fed Funds futures contracts envision a mere 2 percent probability of an interest rate hike.

Traders’ Fed policy outlook took a sharp dovish turn after May’s dismal payrolls figures and markets will look to the central bank for validation. For their part, central bank officials have been somewhat dismissive, warning that it would be unwise to over-extrapolate from a single data point subject to multiple revisions in the coming months.

This means that investors could be surprised to find the plan for two rate hikes this year as well as baseline forecasts for growth, employment and inflation remain broadly unchanged. Such a result would appear hawkish relative current priced-in bets and seems likely to push the US Dollar higher. It may likewise stoke renewed risk aversion, applying outsized pressure on the Australian, Canadian and New Zealand Dollars.

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

REINZ House Sales (YoY) (MAY)

13.6%

-

18.4%

22:45

NZD

BoP Current Account Balance (1Q)

1.306b

0.960b

-2.894b

22:45

NZD

Current Account GDP Ratio YTD (1Q)

-3.0%

-3.0%

-3.2%

23:30

AUD

Weekly Consumer Confidence Index (JUN 12)

116.4

-

116.8

00:30

AUD

Westpac Consumer Conf Index (JUN)

102.2

-

103.2

00:30

AUD

Westpac Consumer Conf SA (MoM) (JUN)

-1.0%

-

8.5%

03:00

NZD

Non Resident Bond Holdings (MAY)

68.5%

-

66.5%

06:00

JPY

Machine Tool Orders (YoY) (MAY F)

-

-25.0%

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

08:30

GBP

Claimant Count Rate (MAY)

2.1%

2.1%

Medium

08:30

GBP

Jobless Claims Change (MAY)

0.0k

-2.4k

Medium

08:30

GBP

Average Weekly Earnings (3M/YoY) (APR)

1.7%

2.0%

Low

08:30

GBP

Weekly Earnings ex Bonus (3M/YoY) (APR)

2.0%

2.1%

Low

08:30

GBP

ILO Unemployment Rate (3Mths) (APR)

5.1%

5.1%

Medium

08:30

GBP

Employment Change (3M/3M) (APR)

60k

44k

Low

09:00

EUR

Eurozone Trade Balance SA (APR)

21.5b

22.3b

Low

09:00

EUR

Eurozone Trade Balance NSA (APR)

26.0b

28.6b

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.1013

1.1122

1.1165

1.1231

1.1274

1.1340

1.1449

GBPUSD

1.3799

1.3979

1.4046

1.4159

1.4226

1.4339

1.4519

--- 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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