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Aussie steadies after US Fed’s rate hike

Published September 27, 2018

Author: Dennis Li

As expected the US Fed raised its interest rates by 25 basis points the third time this year. The Aussie rallied by 0.85% hitting it a new month high of 0.7314 against the USD before quickly giving up its gains and retreating back to its now comfortable 0.7250/60 zone. Meanwhile it finished around 0.30% higher against both the sterling and the euro.

  • The Fed raised interest rates on Wednesday and forecast three more years of economic growth marking the end of ‘accommodative’ monetary policy while it still expects another rate hike in December, three more next year and one increase in 2020.
  • US President Trump said he had agreed with Japanese Prime Minister Shinzo Abe on Wednesday to start talks on a bilateral free trade agreement that Tokyo has been resisting.
  • Canadian Prime Minister Trudeau on Wednesday shrugged off US pressure to rush into a deal on NAFTA and indicated it was possible the three member nations (Mexico, US & Canada) might fail to conclude a new pact.
  • China on Wednesday unveiled plans to cut tariffs for products including machinery, electrical equipment and textiles beginning from November amid an escalating trade war with the US.
  • A simulation by the ECB showed on Wednesday that the US would have the most to lose if it started a full-blown trade war with other countries, while China would be better off after retaliating.
  • The RBNZ maintained its Official Cash Rate at 1.75%, employment is sustainable, growth is expected over the coming year and projections little changed. Global inflationary pressure is expected to rise but remain modest.