Asia Pacific Market Open Talking Points
- Neutral Fed undermines dovish bets as S&P 500[1] sinks, US Dollar[2] gains
- NZD/USD[3] downtrend may be resuming in well-defined falling channel
- Asia Pacific markets bracing for potential risk aversion, Yen may rise
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FX News Wednesday
The initial reaction to the FOMC[5] monetary policy announcement took its toll on the US Dollar. Markets focused on an unexpected cut in the interest rate on excess reserves[6] as every other setting was left unchanged. But things soon quickly turned around 30 minutes later once Fed Chair Jerome Powell held his press conference.
Overall, Mr Powell delivered a neutral and balanced tone as he mentioned that policymakers ‘don’t see a strong case for a rate move either way’. Comments on weaker inflation were offset by confidence that the economy is continuing on a healthy path. More importantly, external risks seemed to have cooled as he noted improvements in Chinese and European data with Brexit concerns having been subsided.
At that moment, the US Dollar made a U-turn as it climbed with government bond yields. The S&P 500 then tumbled, experiencing its worst day in almost 6 weeks. It was not that there was an increase in Fed rate hike bets. It was that exceptionally dovish expectations were cooled, as anticipated[7]. Fed funds futures now show
