Daily Outlook

The US dollar tumbled as the Federal Open Market Committee met in the early hours of Thursday morning. The Federal Reserve has left rates unchanged at 0.25 – 0.50 percent with 9 out of the 10 members voting in favor of maintaining the target rate. Despite indicators pointing to a recent strengthening in the labor market, business fixed investment and exports data are soft. Yellen expects a gradual increase in the Fed’s fund rate only if risks of continued global economic and financial developments subside. The Fed’s concern over global growth and economic conditions is reflected by cuts to the 2016 inflation forecast from 1.6% to 1.2% and revisions to GDP forecast from 2.4% to 2.2%.

Although the market had priced out the potential for three or four rate hikes this year, the Fed’s more-dovish than expected commentary left the market cautious. Yellen’s global outlook values the impact Fed decisions can have on such an interconnected global economy. As central bankers around the world look to negative interest rates for growth and inflationary stimulus, perhaps Yellen’s concern of higher relative rates justify her positioning.

As markets digested the Fed’s announcement, the Australian Dollar rallied over one percent, from 0.745 to 0.7575. The post FOMC rally was however cut short as the RBA’s Assistant Governor Debelle subtly jawboned the Australian dollar. Debelle pointed out the motivation for lower currencies from central banks commenting “we would welcome a slightly lower exchange rate” however, “not everyone can have that.” The AUD is currently trading at 0.7540 at time of writing.

Gold rallied over $30 on the back of the Fed announcement. The precious metal jumped from $1231.40 to $1263.70 as the market priced out some expectations of rate hikes this year, looking for value-holding assets in a low global interest rate environment.