Bell FX Currency Outlook: The Australian Dollar has firmed following the FOMC’s decision to raise the target range for the
federal funds rate by 0.25% to 0.25-0.50%, seven years after moving to the zero lower bound.

Australia: Finally the day has arrived, and in the press conference, as expected, Chair Yellen emphasized the path of policy tightening is likely to be gradual and will depend on how economic data and the outlook evolve. With the first US rate hike out of the way and market conditions remaining relatively normal, the FX market is now likely to start focussing on Christmas. Medium-term the market remains bullish on the USD and short AUD and NZD positions seem likely. Today, detailed Australian labour force data for November, including industry detail, is released at 11:30am AEDT. The NSW mid-year budget update is also due this morning. Press reports suggest NSW’s general government debt will be “effectively zero” due to asset sales. The Fed rate hike drove some volatility in the AUD and it touched both the high and low of its recent range in the minutes after the decision to hike rates. This move has likely cleaned out market positioning, and the market will once again be in a position to focus on fundamentals. With no further cuts priced in for the RBA, and with the iron ore price below USD40 per tonne, risks look to be to the downside.

Majors: Markets have been choppy this morning following the Fed rate hike and during Chair Yellen’s press conference. US Treasury yields initially declined but have retraced those moves to close higher. US equities also rose over the day as did European stocks earlier. Prior to the Fed rate hike, oil weakened further after the US agreed to lift the 40-year ban on crude oil exports and the EIA reported that US crude inventories rose last week. Yields rose across the curve after the Fed hiked but moves were reasonably well contained. The focus will now shift towards the pace of US rate hikes, with commodities bulls likely to welcome a gradual rate hike cycle. The Fed’s median forecast for the fed funds rate for end 2016 was unchanged at 1.4%, implying four hikes next year.

Economic Calendar 17 DEC

  • JN Trade Balance Nov
  • AU RBA Bulletin
  • UK Retail Sales Nov
  • US Philadelphia Fed Business Outlook Dec

BellFx

[Kick off your trading day with our newsletter]
More from IBT Markets:
Follow us on Facebook
Follow us on Twitter
Subscribe to get this delivered to your inbox daily