- Fed acknowledged growth slowdown
- Fed hopeful on low oil prices effect on inflation will be 'temporary'
- RBNZ hint at future hike, noting 'many risks' for the economy
Overnight the Federal Reserve did their best to calm markets while giving themselves some time to gather more information before committing themselves to more policy action. As expected, the FOMC left interest rates on hold however the statement was broadly neutral and had something for everyone. The Fed acknowledged the slow growth of late last year and mentioned that they would be closely monitoring global economic and financial developments.
On the other hand, they also referenced the improved labour markets and that they still expect interest rates to rise in a slow and gradual manner. The prospects of a March hike while diminished are by no means off the table although markets are now predicting that we won't see any movement until June at the earliest. Yellen's testimony on the 10th February is now the focus for near term direction and we may remain range bound until then.
The New Zealand Dollar weakened as the RZNB also left interest rates on hold. The central bank noted that the decision to hold rates was a close call and they also welcomed further depreciation of the Dollar. Fonterra have also downgraded milk price forecasts. With the dovish bias still firmly in place and rallies around the New Zealand Dollar, Kiwi is likely to be limited.
Today the early focus will be in the UK as we await fourth quarter GDP figures which are forecast to come in around 0.4% on the quarter. With the Pound in vogue at the moment, any figure not in line will certainly cause significant volatility. This afternoon and tomorrow we await a raft of US data most of which we anticipate will be slightly weaker than forecast.
FX Research by Ricky Nelson
Daily Currency Analysis with Charlie Horsley