Market Update 1/08/2024 

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Equities rose ahead of the Federal Reserve’s announcement and gained further afterward, with the S&P 500 climbing 2.0%. The yield on the US 10-year decreased by 5 bps to 4.09%. The dollar index (DXY) weakened below 104 in anticipation of the FOMC meeting’s outcome. Although the DXY initially rose following the Fed’s pause, it continued to decline as US bond yields dropped.
 
The Federal Reserve left its policy rate unchanged as expected. While the committee didn’t explicitly signal a rate cut for September, it noted progress toward its goals. In a later press conference, Chair Powell mentioned that a rate cut could be possible by September “if we get the data that we hope we get”. Although this wasn’t as clear a signal as the markets had hoped for, it was a strong hint. The FOMC noted that “inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee’s 2% objective,” which keeps the possibility of a September cut alive.
Key changes in the statement compared to June include:

• “Job gains have moderated” instead of “remained strong.”
• “Unemployment rate has moved up but remains low” instead of “unemployment rate has remained low.”
• “Employment and inflation goals continue to move into better balance” instead of “employment and inflation goals have moved toward better balance over the past year.”

 
The latest ADP employment report from the US revealed another soft performance, with 122,000 job gains compared to 155,000 the previous month, highlighting a slowdown in both employment and pay growth.
 
The USD is generally weaker against G10 currencies.
 
NZDUSD rose by about 0.8% overnight due to a weaker USD. The pair has maintained support levels established in April around 0.5880 and yesterday climbed back above a long-term trend line. Support remains between 0.5880 and 0.5900, while resistance is at 0.5950 and 0.5980. The RBNZ will announce its rate decision on 14^th August, likely to keep the rates unchanged. However, as seen recently with the BoJ and Fed, central banks have clearly communicated their intentions, and the market may be pressuring the RBNZ to consider an early rate cut, potentially starting in October.
 
NZDAUD made strong gains following Australian CPI data yesterday, now trading at 0.9100. It seems likely that the NZDAUD will stay within a long-term trading range of 0.9000 to 0.9400. The current support level is 0.8995, and the next resistance level is 0.9160.
 
NZDJPY briefly dipped below 89.00 before recovering. Meanwhile, USDJPY continued its decline, trading below 150.00, which is over 10.00 yen lower than its peak in July due to significant unwinding of positions. The Bank of Japan increased interest rates by 15 bps to 0.25% and announced quantitative tightening, reducing planned JGB purchases to around JPY 3 trillion in Q1 2026. Their forward guidance remained hawkish. Additionally, the finance ministry revealed intervention figures, showing that Japan spent ¥5.5 trillion ($36.6 billion) to support the yen from 27^th June to 29^th July.
 
NZDEUR went back to 0.5500 overnight. Euro headline inflation unexpectedly accelerated, with consumer prices rising 2.6% in July compared to the previous year, Eurostat reported on Wednesday. This increase was higher than June’s 2.5% figure. Despite this, markets still expect two rate cuts by the end of the year, with 57 bps already priced in. Current support is at 0.5460 and resistance at 0.5525.
 
No domestic data is out today in New Zealand. However, Australian PMI & Trade Balance will be out at 1:30pm. Tonight, Bank of England’s meeting is delicately poised, with the market assigning just over a 50% probability to a 25 bps rate cut. Meanwhile, the consensus anticipates a slight increase in the US manufacturing ISM, though it is expected to stay in contractionary territory.

 
Here are the latest mid-market rates:

NZD/USD 24 HOURS 

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