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Market Wrap
The FOMC cut by 50bps overnight although a balanced press conference from Chairman Jerome Powell drove only minor movements on Wall St. The Dow Jones and the S&P 500 both closed -0.2%, while the Nasdaq closed -0.3%. U.S. 10-year yields rose 7bps to 3.71%, while crude oil fell 1.7% to $70a barrel. The USD was volatile although AUD/USD ultimately ended at 0.6765/70 after trading in a volatile 0.6742/.6820 range.
Before Europe’s open UK August data was released. Core CPI rose 3.6% YoY as expected, while UK Consumer Prices and Services Inflations rose 2.2% and 5.6% YoY in line with forecasts. GBP/USD rose 20pts to 1.3179 as the UK gilts pointed to a 28% chance of a BoE quarter-point rate cut.
Into the London lunch and the greenback managed a small reversal, the antipodes having peaked 0.6789 and 0.6228. EUR/USD and GBP/USD traded 10 points off 1.1140 and 1.3227 highs as USD/JPY briefly looked above 142.00 with US equity futures flat before open.
The FOMC cut their benchmark interest rate 50bps to a target range of 4.75%-5%, with the dot plot showing a cumulative 100bps of cuts this year and 100bps of additional cuts in 2025. The Fed said they were strongly committed to supporting maximum employment and their 2% inflation target.
Into the press conference and Fed Chair Powell stated that the decision to cut 50bps was to get a “good strong start” to the rate cutting cycle, but that they were not in a rush to ease.
Day Ahead
In New Zealand, the Q2 GDP will be released this morning and is expected to fall, with most activity indicators for the quarter weak. Looking at the bottom-up indicators, domestic demand remained sluggish with the volume of retail trade falling 1.2% QoQ and construction activity falling 0.2% QoQ. Net exports were also likely a solid drag on growth.
The RBNZ had forecast a total fall of 0.7% over Q2 (-0.5% QoQ) and Q3 (-0.2% QoQ) in the August SoMP and had signalled that the Board intends to take a cautious approach to easing monetary policy despite these weak expectations. Given the emphasis placed on inflation data, Macquarie Strategy suspect next week’s GDP print is unlikely to lead to significant changes to policy rate expectations, given monthly activity-related data has shown ongoing softness in Q3 to-date.
In Australia, the employment data will also be published and is likely to have remained solid at around 25k in August, although the current ABS estimates of population growth suggest the labour force will show even stronger growth. The unemployment rate may therefore edge up to 4.3%, consistent with ongoing softening in other labour market indicators.
In the UK, the Bank of England Bank Rate will be decided, with the BoE unlikely to cut its policy rate. Commentary from Governor Bailey following the August rate cut suggested the MPC will take a gradual approach to easing given the backdrop of still-elevated inflation and wages growth. Macquarie Strategy expect another 25 bps cut will come at their following meeting in November.
AUD/USD traded in a wide 0.6742/.6820 range overnight. Sellers are now expected ahead of the overnight highs, while demand remains in the .6600/25 region.
Chart of the day
Mid-market rates.
| Currency Pair | Mid-market rate |
| AUD/USD | 0.6768 |
| AUD/NZD | 1.0894 |
| AUD/JPY | 96.61 |
| AUD/CNH | 4.8027 |
| AUD/EUR | 0.6089 |
| AUD/GBP | 0.5126 |
| AUD/HKD | 5.2746 |
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