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On January 29th, Goldman Sachs analyst Kay Hay stated that given strong economic data and signs of stabilization in the labor market, the Federal Reserve is likely to maintain its current policy for the time being. However, we expect interest rate cuts to resume later this year, as the slowdown in inflation will allow the Fed to implement two more "normalization" rate cuts, bringing interest rates back to what the Federal Open Market Committee members consider a neutral level.January 29th - Former Federal Reserve Vice Chairman Richard Clarida stated that he expects Powell to avoid the topic of the dollar during todays question-and-answer session. He said, "The Fed is trying to avoid any and all discussion about exchange rates."Federal Reserve Chairman Jerome Powell will hold a monetary policy press conference in ten minutes.January 29th - The market can pay attention to a slightly technical detail: while the entire Federal Open Market Committee (FOMC) votes on the benchmark federal funds rate, only the seven members of the Federal Reserve Board vote on the interest rate on outstanding reserves (IORB). This rate typically moves in tandem with the federal funds rate. Today, all seven board members voted to keep the rate unchanged, which is usually the norm, even if some board members dissent on the federal funds rate decision. However, there were previous concerns that board members eager to push for rate cuts might express this inclination in the IORB vote. But this did not happen today.On January 29th, Pepperston analyst Michael Brown stated that the policy statement was largely unchanged, although the assessment of economic conditions was revised upward to reflect a "robust" pace of growth. He indicated that attention will shift to the press conference, where Federal Reserve Chairman Powell may mention that the current federal funds rate is within a reasonable range for the neutral rate, but he will likely firmly avoid any questions regarding what happens after May.

The NZD/USD exchange rate is under pressure as investors anticipate crucial US developments

Alina Haynes

Dec 12, 2022 15:37

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Beginning with a high of 0.6411 and a low of 0.6382, the NZD/USD exchange rate is down 0.25 percent, sliding from its previous high of 0.6411 to its previous low of 0.6382. To date, though, it has been the best-performing G10 currency month.

 

ANZ Bank analysts commented, "NZD seasonality is normally positive in December, but while it has that plus rising interest rates on its side, there are no guarantees that it will emerge undamaged from this week's several central bank meetings."

 

The Federal Open Market Committee is due to meet this week, and market participants anticipate a hawkish result. The US producer price index for November was somewhat higher than anticipated, bolstering the case for the Federal Reserve to raise interest rates in the future, albeit at a slower rate.

 

TD Securities analysts estimate that the FOMC will raise rates by 50 basis points at its meeting in December, putting the target range for the Fed funds rate to 4.25 percent to 4.50 percent. "By doing so, the Committee's inflation-adjusted monetary policy stance would move into the restrictive zone. In September, we think that the FOMC will indicate that they will have to shift to a higher-than-expected terminal rate.

 

ANZ Bank analysts stated, "Our key concern is what this may do to the USD, which has been under pressure as the "pivot" narrative has gained traction amid signs of ongoing US inflation."

 

"NZ variables will also play a role, with the HYEFU and GDP due this week," but they are likely to be overwhelmed (again!) by volatility and the global climate.

 

In other news, the US consumer inflation report on Tuesday will set the tone for markets prior to the Federal Reserve meeting. Economists forecast a fall in core inflation to 6.1% in November from 6.3% in October.

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