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Fed cuts rates “to provide insurance against ongoing risks”

Published September 19, 2019

Author: Roy Agostino

For the second time this year, the Federal Reserve lowered interest rates by 25bp to a range of 1.75% to 2%. This widely anticipated move failed to hurt the dollar, which ended the NY session up against all of major currencies.

Today’s move by the Fed was not unanimous, with 2 Fed Presidents (Eric Rosengren and Esther George) against easing and another, James Bullard, wanting a 50 basis point cut. Fed Chairman Jerome Powell provided limited insight to future policy changes; saying “we are going to be highly data-dependant … we are not on a pre-set course, we are going to be making decisions meeting by meeting” According to the Central Bank, the labour market and household spending is strong, job gains are solid and economic growth moderate. Inflation was likely to return to the Fed’s 2% target Powell said.

According to the dot plot, Fed officials are divided on whether additional action is needed. Of the 17 policymakers that make up the Fed, 7 are expecting a third rate cut this year, 5 see the current rate cut as the last for 2019 and 5 did not favour a cut overnight! This divisiveness is the main reason why Powell said that the Fed is not on a pre-set course, adding “there is a lot of uncertainty” around rate-path views and the economic outlook.

What is the one thing Markets dislike most? Uncertainty!!

Before the resumption of trade talk between China and the US later today, President Trump warned Beijing to make a trade war deal before American presidential election next year otherwise China will face the ‘toughest trade war deal ever’.

Ahead of today’s Australian Employment data for August the AUD/USD is holding 0.6825/30. After a strong July result the expectation is for jobs to grow modestly (10k), with the unemployment rate to rise slightly to 5.3%.

The less dovish Fed rhetoric combined with potentially weak employment data would likely send the AUD/USD toward 0.6800/10 support; so on the day the downside appears the greater risk unless we see a break through resistance at 0.6850/60.

 

 

 

Adam Nikitins and Stewart McCallum were appointed Joint and Several Voluntary Administrators of EncoreFX (Australia) Pty Ltd on 30 March 2020.

Rees Logan, Adam Nikitins and Stewart McCallum were appointed Joint and Several Voluntary Administrators of EncoreFX (NZ) Limited on 30 March 2020.

Any queries regarding the Administrations should be directed to encorefx@au.ey.com.