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FOMC remain on the sidelines

Published May 2, 2019

Author: Perry Mitchell

Overnight the Federal Open Market Committee stole the limelight following its 2-day meeting. The FOMC announced that it kept the benchmark interest rate range unchanged at 2.25-2.50% and to remain on the sidelines. It was noted that the language in the statement overnight contained a subtle change from the March statement… The US labour market remains strong and that economic activity rose at a solid rate -previously “growth has slowed”.

Whilst the statement was broadly in line with expectations and was reflecting data updates, Fed Chairman Powell had more of an upbeat tone at the press conference. One of the key takeaways from the statement is one of patience again – The Fed is staying patience on rates as the economy is ‘solid’ and inflation is muted. It was also noted further declines in inflation while growth in household spending and business fixed investment slowed as well.

The AUD couldn’t withstand Fed’s Powell’s avoidance of hinting catalysts for a rate cut and came off overnight (around 0.7%) to be trading just above a major horizontal support line going back to September 2018. Unless breaking below rising trend line (see chart below), the psychological round number of 0.7000 gets additional support with this. With local housing data due tomorrow and the RBA statement next week, expect AUD to still remain range bound as it has over the last 83 days.

In other news, it seems that the US and China are moving rapidly on trade discussions. CNBC recently reported that a trade deal could be finalised by next Friday (from unnamed sources with direct knowledge of the dealings).