TALKING POINTS – FOMC, US DOLLAR, NEW ZEALAND DOLLAR, RBNZ, AUSSIE DOLLAR, CHINA
- US Dollar may celebrate even a status quo FOMC policy posture
- New Zealand Dollar up on data, follow-through depends on RBNZ
- Aussie Dollar gains as MSCI angles to boost China index weight
A quiet offering on the European data docket puts the FOMC rate decision firmly in the spotlight. Rate hikes are convincingly priced in for this and December’s conclave, making the outlook for 2019 the central source of speculation. Markets have accounted for two rate increases next year while June’s central bank forecast narrowly called for three.
Leading PMI survey data suggests the pace of US growth has slowed and figures from Citigroup argue that incoming economic news-flow has increasingly deteriorated relative to consensus forecasts since mid-year. That might limit scope for further steepening in official tightening projections, seemingly leaving the US Dollar without fresh fodder for upside momentum.
Still, the greenback retreated from mid-August highs alongside US Treasury bonds. That seems to imply that the move reflects ebbing haven demand amid easing risk aversion following a burst of kneejerk volatility in emerging market assets. With that in mind, even a status quo Fed stance may offer USD a lifeline if only because it reminds traders of its swelling yield advantage against G10 FX alternatives.
The New Zealand Dollar outperformed in Asia Pacific trade, lifted in the wake of data showing an improvement in business confidence. Scope for follow-through may be limited however if the upcoming RBNZ policy announcement strikes a dovish tone once again. As it stands, rate futures are not expecting a rate increase until mid-2020.
The Australian Dollar also traded higher as stocks in China launched a spirited recovery. The Aussie is frequently responsive to swings in investors’ risk appetite. This can be doubly influential when developments in China are at the forefront. The East Asian giant is Australia’s largest trading partner, making the currency a frequent proxy for developments there.
In this case, the surge came as indexing giant MSCI Inc said it was considering lifting the weight cap on yuan-denominated stocks from 5 to 20 percent in its market benchmarks in 2019. Names listed on the tech-centric ChiNext would also become eligible for inclusion next year, and mid-cap shares in 2020. By way of context, MSCI says close to $2 trillion in assets is anchored to its emerging-market index.
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ASIA PACIFIC TRADING SESSION
EUROPEAN TRADING SESSION
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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