Market Drivers September 22, 2016

Dollar down post FOMC
RBNZ jawbones kiwi
Nikkei 1.91% Dax 1.66%
Oil $45/bbl
Gold $1336/oz.

Europe and Asia:
NZD RBNZ no change
EUR LTRO 45B vs. 399

North America:
USD Weekly Jobless 08:30
USD Existing Homes 10:00
USD LEI 10:00

With the exception of USD/JPY which bounced off the psychologically key 100.00 level in early Asia trade, the buck was lower against all of its major trading partners in morning European dealing as traders reacted the to the cautious FOMC guidance from yesterday.

In yesterday’s FOMC presser, the Fed Chair Janet Yellen reaffirmed her view that the US economy was generally moving in the right direction but that it was premature to hike rates just yet. Ms. Yellen gave a strong indication that the Fed is likely to move on rates in December should the US economy remain on the current path of growth.

The Fed’s tilt toward hawkishness was evident in yesterday’s vote with three members of the board voting to hike rates in September. Still Ms. Yellen sounded like a reluctant bull and it was her tone of indecision more than anything else that prompted the market to run stops against the greenback this morning as Fed funds futures still only give a 50/50 chance of rate hike in December.

Those odds are likely to change if US data shows any upside surprises and more importantly if the monthly job gains remain above the 100K level. Ms. Yellen stressed the fact that the economy is now generating enough jobs to absorb the new entrants into the workforce and that seemed to be the single biggest reason in her mind for return to monetary policy normalization. Still, until the market sees some evidence of continued growth in the US economy, doubt about the a December rate hike will persist and that dynamic could weigh on the greenback for the time being.

Elsewhere the RBNZ kept its rates on hold as expected, but offered a more dovish statement, noting that the high value of the kiwi was not helping in fighting the deflationary pressures in the economy. It’s attempts at jawboning however had little impact on NZDUSD which remained generally steady in Asian and early European trade. The other high yielder – Aussie – did considerably better rising to a high of .7668. With Fed hike in December still in doubt, the carry trade flows will continue to prop up the high yielders and Aussie looks to hold ground above the .7500 level for the time being.

The North American calendar is relatively sparse with only weekly jobless claims and Existing Homes on tap so the price action may be subdued but with sentiment now turned slightly negative towards the buck any disappointments in data could push Aussie towards the .7700 figure and EUR/USD through 1.1250.

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