“US Fed plans to continue to raise rates in 2018.”
As expected the US Federal Reserve lifted the official cash Rate on Wednesday by 0.25% and indicated to the Market to expect at least another two rate hikes for the balance of 2018. That would bring the US Fed rate to 2.5% a full 1% higher than the RBA. Chairman Jerome Powell said in his statement. “The main takeaway is that the economy is doing very well. We think that gradually returning inflation levels to a more normal level as the economy strengthens is the best way the Fed can help sustain an environment in which American households and businesses can thrive.” The US Fed is upbeat and the US economy is effectively at full employment and inflation, the big barometer to whether a Central Bank will continue to raise rates is on the rise. The US Dollar whipsawed back and forward as it always does in the hours post the statement and the US stock market retreated as I expected it would as money flows out of “riskier” stocks and into fixed income such as bonds and cash. As US interest rates rise it will make life more difficult for stock market bulls in 2018 after a rise last year of over 20% it is unlikely the market will see those sorts of gains again any time soon.
The Aussie Dollar fell sharply post the Fed statement and traded to within a tick or two from an important trend line that you will see in my daily video update. My expectation is with the US Fed expected to raise rates another two times in 2018 the overall downward pressure on the Aussie Dollar will remain and Investment Banks and Hedge Funds will use any rally to look to get short once again. Today sees the release of the latest Australian June unemployment figures and the market is expecting the unemployment rate to stay on hold at 5.6% and 19,000 jobs to have been created in the previous month. The unemployment data will be important for the short-term direction of the Aussie and if out of line with expectations it could move up to half a cent or more within minutes.
With the US Fed’s statement out of the way, the focus will return to the ECB’s statement which is released tonight at 9.45pm AEST. As we have been discussing for over a week now the market has been buying back into the Euro with the expectation the ECB will announce a reduction or conclusion date for its multiyear stimulus program. Expect plenty of volatility on the Euro through the European trading session today.
The British Pound mostly held its ground on Wednesday after PM Theresa May saw off a challenge to her Brexit bill. We must keep in mind Theresa May is simply following through on what UK citizens voted to do. Leave the European Union… and in fact, she campaigned and voted to stay to keep the UK in the EU when the vote occurred back in 2016. Her Prime Ministership appears safe for now. UK CPI for the May slipped slightly and this held back any gains as traders are eyeing off a potential rate rise for the BOE in the second half of 2018.
US markets finished lower with the Dow Jones off over 100 points, so the theme heading into today is one of caution and risk off. The Aussie Unemployment data at 11.30am will be watched closely, however, as the US Fed held court on Wednesday it will be the ECB’s turn today. The US session will see the release of June US Retail Sales.
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About the Author: Andrew Barnett
Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).
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