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USD Falls As Fed Sees Case For Rate Cuts

Published June 20, 2019

Authors: Brett Gordon / Steve Oram

The AUD / USD pair neared 0.6900 level as the USD was under some pressure post FED. Economic growth will likely remain below trend for the remainder of 2019. The negative news has just confirmed RBA`s decision to cut rate earlier this month. The FED was also Dovish but not as much as the RBA’s announcement.

Fed Signals Rate Cuts

The Federal Reserve held rates steady at 2.25-2.50% this morning as expected, however signaled two possible rate cuts over the course of the year in response to increased economic uncertainty and a drop in expected inflation. Though the baseline outlook remains “favorable,” Fed Chair Jerome Powell said, risks continue to rise, including the drag that rising trade tensions may have on U.S. business investment and signs that economic growth is slowing overseas.

Both the USD and US Treasury yields fell on the announcement with a rate cut now expected as soon as its next meeting in late July. Markets will now turn their focus to the upcoming G20 summit where President’s Donald Trump and Xi Jinping are expected to have extended talks in hope of securing a trade deal.

US Trade Representative Robert Lighthizer has recently issued a statement saying that he expects to meet the Chinese Vice Premier and the US Treasury Secretary Mnuchin ahead of the G20 summit in Japan. He went on to comment on the highly politicized USMCA trade agreement stating that he did not believe tariff threats on Mexico would make the passing of the deal more difficult.

Markets will focus first this morning on NZ GDP with 0.6% growth expected for the first quarter of the year vs RBNZ forecast of 0.4%. Later today the RBA will publish its quarterly Bulletin, while Gov Lowe is set to speak about labour markets and spare capacity from 11:15 EAST