The Australian and New Zealand Dollars are trading sharply higher shortly before the release of the Federal Open Market Committee’s interest rate decision, monetary policy statement and economic projections. Fed Chair Janet Yellen is also scheduled to hold a press conference.
At 1721 GMT, the AUD/USD is trading .8076, up 0.0068 or +0.85% and the NZD/USD is at .7389, up 0.0073 or +1.00%.
The Australian Dollar is trading higher due to a positive outlook for the economy from the Reserve Bank of Australia.
The global economy has reached a turning point, the RBA said, lifting its forecast for global growth thanks to a coordinated economic recovery.
Also an interim report from the OECD re-affirmed the central bank’s view that the global economy is looking much better than a year ago, but the OECD also warned Australia an interest rate rise could trigger a sharp correction.
In a speech to the Australian Business Economists forum on Wednesday, the Reserve’s assistant governor Luci Ellis said economic language had become a self-fulfilling prophecy for global growth.
“If you contrast the words most frequently used in the first chapter of the April 2016 IMF World Economic Outlook, with the same chapter in the issue from a year later, you can see how the tone has changed,” she said.
She also added, “Taking all that into consideration, there seems a reasonable prospect that, as long as nothing really bad happens, this global expansion could continue for a while.”
New Zealand Dollar
The New Zealand Dollar is trading at its highest level in 6 ½ weeks as one poll showed the country’s National Party pulled ahead of the rival Labour Party ahead of a general election this week-end.
Support for the National Party jumped 6 points to 46 percent, according to the One News-Colmar Brunton opinion poll, while support for the opposition Labour party slumped by seven points to 37 percent.
U.S. Federal Reserve
Fed policymakers are expected to hold the benchmark interest rate unchanged at <1.25 percent and announce their plan to begin reducing the central bank’s $4.5 billion balance sheet.
The Fed is expected to announce a lowering of monthly bond purchases, starting in October, when their two-day meeting ends on Wednesday. The Fed is also expected to leave the door open for a rate increase at their December 12-13 meeting. At the close on Tuesday, the futures markets implied traders saw a 58.3 percent chance of a rate increase at year-end, according to the CME FedWatch tool.
The biggest risk for the U.S. Dollar is if the Fed casts doubt on a December rate hike.