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Kiwi Surges on Dovish Fed

Published January 31, 2019

The NZD and AUD surged above 1% against the USD following Fed Chairs dovish statement this morning.

Federal Reserve will be patient on future rate hikes

The Federal Reserve kept interest rates on hold at 2.25-2.5% this morning as expected, however drops comment from the previous statement that said “further gradual increases” in Fed funds rate would be appropriate. Fed Chair Jerome Powell has said the Fed will be patient on further rate hikes given the increasing uncertainty on the global economy and soft inflation. The USD weakened as the likelihood of future rate hikes remain low for the near term.

AUD Gains on Inflation Beating Forecasts & Rise in Iron Ore Prices

The AUD has seen the highest gains overnight, following slightly better than expected inflation numbers. Australian headline inflation resulted in 1.8% vs 1.7% forecast and still below the RBA’s target band of 2-3%. The rise was largely due to an increase in tobacco prices and a lift in domestic airfares. Markets have now reduced chances of an RBA rate cut to 50% from 65% pre-data by November.

Iron ore prices surged on news that Vale, the world’s largest producer plans to reduce the output following the dam disaster in Brazil, this also helped the AUD surge higher.

US Employment in Focus

The ADP survey released overnight indicated a gain of 213k vs expectations of 178k and comes ahead of the all important non-farm payrolls Friday night with a forecast of 165K new jobs.

Markets will continue to watch developments on US-China trade talks