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Dovish Fed Weighs on US Dollar, Sends NZD Higher

Published March 21, 2019

The Kiwi Dollar opens the day higher after a dovish FOMC statement earlier this morning. The NZD gained around half a cent as the US Fed left rates on hold, but effectively put an end to their monetary tightening cycle. There is potential for more movement in the Kiwi today, as attention turns towards NZ Q4 GDP numbers due at 10.45am, followed by Australian Unemployment this afternoon at 2.30pm.

US Rates on Hold

The US Fed left interest rates on hold as expected this morning, but indicated they do not intend to raise rates again this year. Eleven out of Seventeen Fed Officials projected no hikes for the year, indicating that the Fed tightening cycle is likely to be over. This is a change from the last meeting in December where 2 hikes were still being expected. The Fed also revised its GDP and PCE inflation numbers lower, further adding weight to the no rate hike scenario. GDP is now expected to run at 2.1% (compared to 2.3% from December), while PCE inflation is forecasted at 1.8%, down from 1.9%.
Meanwhile, trade talks continue with US Trade Representative Lighthizer and Treasury Secretary Mnuchin returning to China next week for more bilateral trade talks with their Chinese counterpart, Vice Premier Liu He.

GBP on Back Foot

The Pound was one of the few currencies not to make ground against the US Dollar as Brexit uncertainty continued to weigh. European Council President Tusk said overnight that the EU will only agree to delay Brexit until June 30th if UK parliament approves PM May’s current exit plan. The Pound had been holding its ground earlier as UK CPI rose unexpectedly in February. Annual UK CPI came in at 1.9% in February, up from January’s 1.8%, which had been its lowest since December 2016.