ASX
An investor is reflected in a window as he looks at boards displaying stock prices and an advertisement for zero percent interest rate for purchasing a car at the Australian Securities Exchange in central Sydney, Australia, July 8, 2015. Reuters/David Gray

Bell FX Currency Outlook: The Australian Dollar has firmed slightly after the minutes of the US Federal Reserve July policy meeting showed there were doubts about a September interest rate hike.

Australia: This morning we see the AUD trading at USD 0.7350 havingreached 0.7374 overnight. The FOMC Minutes struck a cautious tone, with markets paring back the odds of a September rate hike. This caution stalled the USD rally but the weakness appears temporary. Weaker commodity prices and continued deterioration in emerging market sentiment are dominating and should keep the USD in demand. Prior to the FOMC Minutes, US Treasuries were sold after soft US CPI data from lower oil prices. These moves were later reversed. US 10-year yields closed lower while core and peripheral euro area sovereign bonds rallied modestly. Equity markets fell sharply on both sides of the Atlantic, with energy stocks underperforming. Locally, another quiet day is likely, as the market has no news.

Majors: The FOMC Minutes had a swift impact on both currency and interest rates markets. The Committee’s level of concern about the labour market was heightened, particularly regarding the lack of wage inflation that might suggest more labour market slack than previously believed. The dynamics of inflation expectations were also highlighted as a key uncertainty. The key sentence that markets have focused on is this one:“almost all members indicat[ed] that they would need to see moreevidence that economic growth was sufficiently strong and labor marketconditions had firmed enough for them to feel reasonably confident thatinflation would return to the Committee’s longer-run objective over the medium term”. Given that commodity prices have fallen further since the FOMC meeting, it is a fair assessment by the market that the odds of rates being lifted next month is not as high as it was. And in the bigger picture, itis difficult to really see all this as ‘good news’ given the fact that global economies are not playing by the usual rules. The longer official ratesremain at (practically) zero, the greater the distortions will be. Fed’s Williams is speaking late afternoon, and as a neutral voter, he has the potential to sway the market back to hiking if there is any hint of a willingness to start the normalisation policy, given the minutes last night.

Economic Calendar 20 AUG

  • RBA FX Transactions Market Jul
  • CH MNI Business Indicator Aug
  • UK Retail Sales Jul
  • US Existing Home Sales Jul

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