Market Analysis

US Dollar searches for price discovery after FOMC forecast

Traders and investors scrambled to re-price the US Dollar against a basket of currencies after the Federal Reserve signalled that they are unlikely to raise US interest rates again this year. Markets had been expecting one more hike this week, whilst some economists had even been hopeful for at least two rate hikes from the Federal Reserve.

FOMC members also lowered their economic outlook for the United States this and next year, although US policymakers did forecast one more rate hike in 2020. The FOMC also noted that global economic and financial developments and muted US inflation pressures were reasons to keep the federal funds rate on hold.

The general re-pricing of the US Dollar is also being skewed by Brexit, as the euro and the British pound struggled to hold onto there strong post FOMC gains. Sterling is likely to remain dominated by Brexit, while the euro currency still has a degree of uncertainty surrounding it and the potential hard it could do to the European economy.

Weakening overseas growth in Asia and Europe, pressure from US President Donald Trump to keep US rates on hold and the overall uncertainty that Brexit is creating must also be weighing on Federal Reserve members, although few market participants expected the FOMC dot plots to be so bearish.

The Japanese yen and Swiss franc currencies have held onto its gains against the greenback relatively well, as safe-haven asset classes become sought after in the current economic climate, although both central banks have dovish leanings, with the Swiss National Bank lowering their economic projections on Thursday.

The New Zealand Dollar performed well against the greenback in the aftermath of the FOMC policy meeting, which could be partly attributed the Reserve Bank of New Zealand being the only major central bank that still has a relatively neutral tone towards monetary policy. Last months policy statement caused the kiwi to spike, as the RBNZ sounded less dovish than expected.


NZD/USD Daily Mountain | Source: ActivTrader

NZD/USD Daily Mountain | Source: ActivTrader 


From a technical perspective, the NZD/USD pair is also the closest to a potential bullish breakout, with a sustained move above the 0.6970 level likely to trigger the next wave of technical buying. The 0.6840 level appears to be the line in the sand for buyers at the moment, with key support below at the 0.6790 level.


Written by Nathan Batchelor, External Analyst


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