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Published August 1, 2019

The Kiwi Dollar opens lower this morning, losing ground as the US Dollar rallied on a more hawkish than expected statement from the US Fed. The FOMC lowered its target range on Fed Funds to 2.00 – 2.25%, as widely expected. The cut in rates was the first since 2008 and had been priced in by markets, but it was the comments from Fed Chairman Powell that sent equity markets lower and the greenback higher.

Fed Leaves Door Open For More Cuts

The widely expected cut in interest rates this morning was no surprise to markets, and there was perhaps more interest in what U.S Fed Chairman Powell had to say. The Fed cited concerns about the global economy and muted U.S inflation. It also signalled a readiness to lower rates again if needed. But Powell said in the press conference afterwards that the rate cut wasn’t necessarily the start of an easing cycle, and the Fed was thinking of it as a “mid-cycle adjustment”. The more hawkish than expected tone was reinforced by news that two FOMC members were in favour of no change. Focus now turns to US Manufacturing data on Friday and Non-Farm Payrolls on Saturday.

No Breakthrough From Trade Talks

Meanwhile on the trade front, U.S-China talks ended yesterday. There has been no news of a breakthrough, with both sides describing the talks as “constructive”. The two sides have agreed to meet again in Washington in September.

Australian Inflation Edges Higher

CPI data released yesterday was slightly above market expectations, initially boosting the Australian Dollar, before it too lost ground this morning after the U.S Fed announcement. Annual core inflation was at 1.6%, ahead of market expectations of 1.5%, and only marginally below RBA forecasts. The number has reduced the likelihood of a RBA rate cut in August.

NZ Business Confidence Falls

Prior to the NZD fall this morning, another drop in business confidence saw the Kiwi sold off yesterday afternoon. The ANZ survey showed headline business confidence fall 6 points to -44% in July. Once again the numbers show a weak outlook for the economy, just a week out from the next RBNZ decision on interest rates. The Kiwi has been one of worst performers over the past 24 hours and is down on all major cross rates this morning.