The Dollar edged further down today to its lowest level since early August in trade-weighted terms. While FOMC members, including Federal Reserve Chairperson Powell, had in recent weeks adopted a distinctively neutral tone, markets’ read on yesterday policy meeting and press conference was seemingly dovish. The Fed and Powell emphasised the downward risks to albeit robust US economic growth, with the key word being “patient on future rate moves. Moreover, as broadly expected the Fed said it was prepared to adjust its balance sheet normalisation in light of economic and financial developments. Far better-than-expected US new home sales data for November did little to move a rates market which continues to price in an unchanged Fed policy rate in 2019.
Despite the Dollar’s soft underbelly, the EUR/USD cross inched lower in today’s session, seemingly weighed down by still weak Eurozone macro data. GDP growth remained unchanged at a lacklustre 0.2% qoq in Q4 2018. Italy – the Eurozone’s third largest economy – was in technical recession in the second half of 2018 with GDP growth in Q4 of
-0.2% qoq and -0.1% qoq in Q3.
Conversely, the Australian Dollar has been outperforming and is now trading at its strongest level in six weeks thanks to decent macro data at home and abroad. Australian CPI-inflation came in slightly higher than expected in Q4 at 0.5% qoq. Moreover, the official Chinese manufacturing PMI, which had been falling since May, stabilised in January. Australia’s economy is closely tied to China’s and signs that Chinese growth may not be falling as fast as feared has helped the AUD/USD cross push towards the 0.73 level, despite a low probability of the Reserve Bank of Australia hiking rates any time soon.
