US Dollar Cautious Ahead of FOMC, NZD/USD Flying High

: Category: World Currency News Archives; Created: 19 August 2020; Hits: 297

Markets Tentative Ahead of FOMC ^[1] Minutes
Kiwi ^[2] Flying High Despite Negative Rate Calls
UK Inflation Jump Expected to Pull Back Next Month

Equities: A rather tentative session ahead of FOMC minutes as European bourses trade marginally higher. The stand out data point this morning had been UK CPI, which saw a headline reading of 1%, above expected of 0.6%. However, given government fiscal policies (Eat Out to Help Out Discounts in August and VAT cuts) expectations are for a retreat in the August reading.

Currencies: The New Zealand Dollar ^[3] is on the front foot, putting in an impressive recovery over the past two sessions (against the RBNZ’s wishes). The latest impetus stemming from the NZ government ruling out the tightest restrictions in Auckland. Although, with NZ banks expecting the RBNZ to deploy negative rates next year, gains may be limited in the NZD. Elsewhere, the US Dollar ^[4] has eked out slight gains, as both the Euro ^[5] and GBP ^[6] test support at 1.1920 and 1.3200. That said, the USD ^[7] bearish trend remains the overarching theme and thus expect dollar gains to be faded.

Looking Ahead: As mentioned previously, all eyes on the FOMC with particular attention placed on the potential changes to the Fed’s forward guidance (Average Inflation Targeting). Although, given that Chair Powell’s presser signalled that the strategic review had yet to be completed, we suspect market participants will be disappointed on this front.