Today’s Key Market Drivers: 21st March 2019
US Fed signals rates on hold for 2019.
The US Federal Reserve has essentially shut the door on any potential rate hike in 2019 issuing a far more dovish March statement than the market expected. The Fed’s statement on Wednesday was a change from its previous statements where it left the door ajar and said it would be data dependent and patient on further interest rate increases. The statement sent the US Dollar sharply lower as traders who were still optimistic the US Fed may lift rates later this year are now unwinding those long positions pricing in their expectation the Fed remains firmly on hold.
The US Dollar Index that measures the US Dollar against a basket of 6 currencies was sharply lower this morning and the Aussie and Kiwi Dollars have both risen to one-month highs. My pessimistic fundamental view of the AUD v USD may need to be adjusted now the Fed has confirmed rates won’t rise in 2019. The dominant currency would now likely be the AUD with the RBA needing to indicate rates will go down in the second half of 2019 for the AUD to sharply go lower. My initial thinking was the US Fed was still a chance to raise rates in 2019 and if the RBA lowered them the AUD v USD would be closer to 0.60c than 0.70c. With only one half of that potential scenario now likely the downward pressure on the AUD will need to come from further weakness in the Aussie economy.
Brexit caps any rally on the Pound.
Any rally on the Pound is essentially capped at present until Brexit is sorted and even with the US Fed’s dovish statement on Wednesday the Pound has not found any buyers to rally it to new highs. It did spike up on the Fed statement but has now retraced back to where it was prior to the news. Traders will also be mindful of the Bank of England’s March statement on Thursday that will likely remind the market global growth and inflation is set to continue to slow in 2019.
It appears increasingly likely the UK will push for an extension to the March 29th official Brexit date.
US Stock Indexes fail to fire post the Fed’s statement.
Why didn’t stocks rally post the Fed’s dovish March statement? Interest rates will remain on hold for the rest of 2019 so repayments on borrowings shouldn’t rise. But! The question now is what will company earnings do in the face of the Fed’s expectation that global growth and inflation will likely moderate and this will also impact the US economy.
It is my view this morning that stocks didn’t fire because traders are now taking the pulse of US companies and trying to figure out for themselves what impact a slowing global economy will have on US company earnings going forward. I am not saying stocks can’t rise from here, I am just saying the market is concerned enough to do some more homework before piling into or adding to current long positions.
New Zealand GDP misses estimates.
The Kiwi Dollar ordinarily would have fallen post the weaker than expected GDP numbers today but there has been so much momentum built behind the AUD and NZD post the Fed statement at 5.00am AEST the tide was running too fast to the upside for the 2.3% vs 2.5% expected GDP reading to turn things back the other way. It is another sign of the potential slowing growth story.
Official Australian Unemployment numbers due at 11.30am AEST.
Be ready for some more volatility on the Aussie Dollar this morning with the release of the latest official unemployment numbers. The market expects the unemployment rate to remain steady at 5% with around 15,000 jobs created in the month of February. In January Australia added 39,000 jobs and I doubt the number today will be anything like January’s stellar figure. If out of line with expectations the Aussie Dollar will move higher or lower so keep an eye on your charts this morning at 11.30am AEST.
Never give up. The beginning is always the hardest.
About the Author: Andrew Barnett
Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).
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