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Monetary policy is in a good place

Published October 31, 2019

Author – Hayden Carswell

 

The US Federal Reserve lowered interest rates for the third time this year by 25 basis points to a 1.50%-1.75% target range.

Fed Chairman Powell made it clear that today’s move was an insurance cut aimed at offsetting risks of softer global growth and uncertain trade developments. Despite the decision to ease today, the FOMC statement and Powell’s comments were optimistic. The Fed expects the economy to continue to grow at a moderate rate as they anticipate a strong labor market and robust consumer spending. Their worries center on investment and exports but with Brexit and trade risks easing, they “believe monetary policy is in a good place”. All of this tells us that the Fed is done for the year and has no intention of lowering rates further for now.

A short AUD market seemed relieved with the positive news post US rate cuts and after an initial fall the AUD/USD has rallied from 0.6845 to record its first daily close above 0.6900 (at 0.6902) since the 29th of July.

Australian inflation yesterday proved no softer than expected, chances of a cut from the RBA next week are low as the headline inflation rate looks to have bottomed out.

As expected the Bank of Canada held rates at 1.75%. The tone was dovish and are considering “insurance” type cuts.

Today we get Australian Building Approval data for September and China Manufacturing data at 11.30am and midday respectively. Expect 0.6900/10 to cap the AUD/USD until then.