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Currency markets were generally unmoved a day or so prior to Thursday’s Federal Reserve meeting, perhaps slightly with a risk off bias. Post Fed equity markets reacted positively as the Fed is unlikely to support the overall market in the medium term which could be detrimental for positive risk sentiment as global markets risks increase. The Federal Reserve lowered its overnight rate from 2.0% to 1.75% as most thought with Powell offering up a policy statement nearly identical to the one he gave in the July meeting. Seven Fed voting officials opted for a 0.25% cut while two voted no cut, and one wanted a cut of 50 points. The difference of opinions between fed officials lends support of what may happen over the rest of the year. Low unemployment and an increase in inflation kind of suggests the fed should not be cutting while trade tensions and a slide in growth could cause further downside momentum for the economy. Fed chairman Powell commented saying the Fed would action a more extensive sequence of cuts if the economy turns down but no Fed officials see rates falling below 1.625% through to 2022. Powell said – we will stop cutting rates “when we think we have done enough”. He doesn’t see a recession or negative rates coming into play.

UK yearly inflation fell to 1.7% to August 2019 its lowest level since December 2016. The monthly fall of 0.4% from July’s 2.1% was the largest drop since 2014 and far chunkier than economists had predicted. This is expected to reflect weaker demand in the economy as consumer confidence deteriorates amid the continued Brexit uncertainty. A no deal Brexit result is still a very real risk. The Bank of England has held their overnight interest rate unchanged at 0.75% in a unanimous vote 0-9. With less than two months until the Brexit deadline as the UK gets set to leave the EU uncertainty hangs over the Bank of England. The central bank set monetary policy at a 2% target to assist with sustained growth and employment. Developments with Brexit are making the UK more volatile with GDP in the second quarter falling 0.2% is now expected to rise by 0.2% in the third quarter, the MPC said underlying growth remains slow but positive.   

The only data this week for the New Zealand Dollar was GDP which published up on the expected 0.4% at 0.5% to the June 2019 quarter following 0.6% in the March quarter. The kiwi never reacted as we expected remaining camped out around 0.6320 against the US dollar. We expected the NZD to have risen to somewhere north of 0.6350 but never did confirming the general bearish sentiment towards the kiwi with investors clearly short NZD.     

The Australian Dollar was broadly sold to lower levels yesterday after weaker than anticipated Jobs data than markets were anticipating. Figures showed that full time employment decreased by 15,500 in August with part time employment increased by around 50,000. While these numbers reflect buoyant employment with the participation rate increasing further to 66.2%, it was the unemployment rate jumping from 5.2% to 5.3% which ultimately put pressure on the Aussie Dollar. Coincidentally after this release the RBA has bought forward their November rate cut forecast back to October citing poor jobs data. A little heavy handed we think.       

The Bank of Japan (BoJ) retained their overnight cash rate at -0.1% and their 10 year yield target unchanged at 0%. Forward policy for future monetary targets was also unchanged with the central bank maintaining their opinion of the economy – the Bank saying they will keep rates low for an extended time at least through to June 2020. The Bank of Japan would not hesitate to ease if necessary.

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