by Nicholas Cork
Despite the lobbying from the Trump administration, the Federal Reserve maintained their integrity and raised interest rates 0.25%. As widely anticipated, they have reduced their forecast from 3 hikes in 2019 to 2, and just 1 hike for 2020. The impact was swift with the USD making quick gains against it’s peers, the DOW went from +300 to -300, and the US Yield curve flattened a touch. Commodity currencies wore the worst of the selling with CAD making another 2018 low in spite of the bounce in oil, and both NZD and AUD are a cent lower than yesterday morning, and both have important data releases today with GDP and Unemployment data respectively.
For the AUD, it has fallen quickly to 6 week lows just below 71 cents after breaking the telegraphed 0.7150 support level, and now sits within its new 0.7050/0.7150 band. Todays unemployment data may determine which level gets tested first, and with a run of strong numbers recently it may be a weak one that will surprise the market. The years lows are now within reach and with the market taking a risk averse stance into Christmas, the downside is vulnerable especially as solutions to the real problems haven’t arrived. Brexit should be front and centre in the UK parliament, but Corbyn is accused of being in allo allo during question time and that becomes the headline. Also, despite the US posturing, the real Chinese view of the trade war was revealed in hacked EU cables overnight, where Xi asserts that “the U.S. was behaving as if it was fighting in a no-rules freestyle boxing match. The U.S. had thrown all rules out of the window and unilaterally imposed labels on others without providing them with the possibility to defend themselves,” and that “caving in would embolden the bully.” Interesting times indeed.
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