It’s all Eyes on the FED, the FOMC Projections and the Powell Press Conference

Earlier in the Day:

The Kiwi Dollar and the Japanese Yen were in action through the early part of the Asian session, with key economic data released including 4^th quarter consumer sentiment and 3^rd quarter current account figures out of New Zealand and November trade data out of Japan.

For the Kiwi Dollar,

The Westpac Consumer Sentiment Index rose from 103.5 to 109.1 in the 4^th quarter.

The Kiwi Dollar moved from $0.68453 to $0.68477 upon release of the data, which preceded the 3^rd quarter current account figures.

New Zealand’s annual current account deficit widened from NZ$9.54bn to NZ$10.54bn, falling beyond a forecasted NZ$10.34bn deficit, according to figures released by NZ Stats.

• While the annual current account deficit was the largest since 2009, as a percentage of GDP it was 3.6% lower than the 7.8% peak recorded during the GFC
• A NZ$2.2bn fall in the goods and services surplus between 2017 and 2018 was the largest contributor to the wider current account deficit for the annual deficit to Sep-18.
• The income side also weighed, with foreign investor earnings rising more than income New Zealand investors made overseas.

The Kiwi Dollar moved from $0.68522 to $0.68453 upon release of the data before rising to $0.6863 at the time of writing, a gain of 0.25% for the session.

For the Japanese Yen, the trade deficit narrowed from ¥450bn to ¥737bn in November.

• Exports rose by just 0.1% in November, year-on-year, falling well short of a forecasted 1.8% increase and October 8.2% rebound.
• Imports jumped by 12.5%, rising above a forecasted 11.5%, whilst easing up from October’s 19.9% jump.
• The adjusted trade deficit widened from ¥0.29tn to ¥0.49tn, raising more questions over the Japanese economic outlook ahead of tomorrow’s BoJ policy decision and press conference.

The Japanese Yen moved from ¥112.521 to ¥112.438 against the U.S Dollar, upon release of the figures, before rising to ¥112.4 at the time of writing, a gain of 0.11% for the session.

Elsewhere, the Aussie Dollar stood at $0.7196 at the time of writing, a gain of 0.21% for the session, the U.S Dollar under significant pressure ahead of today’s FED policy decision and projections for next year.

The Day Ahead:

For the EUR, economic data is limited to November wholesale inflation figures out of Germany, which will unlikely have a material influence on the EUR, with focus through the day being on today’s FED monetary policy decision and FOMC economic projections that could see monetary policy convergence in spite of Draghi’s dovish tones at the last ECB press conference.

On the geo-political front, there was some much needed good news, with the Italian coalition government reaching an agreement with the EU on its 2019 budget, the 2019 budget reduced from an originally drafted 2.4% of GDP to 2.04% of GDP. Perhaps of greater significance was a shift in the coalition’s stance with the EU, the coalition clearly unwilling to stand up against the Establishment in order to avoid sanctions and more.

At the time of writing, the EUR was up 0.18% to $1.1382, with sentiment towards the FED the key driver today.

For the Pound, economic data scheduled for release later this morning includes November inflation figures together with December’s CBI industrial trend orders.

With the BoE monetary policy decision on Thursday, we can expect some response to the inflation figures, though direction off the back of the stats will likely be more muted than usual as the market tracks chatter from parliament on a possible vote of no confidence, a second Referendum and any comments from Brussels on the current deal that looks doomed for failure come 14^th January.

At the time of writing, the Pound up 0.21% to $1.2665, with Brexit chatter and parliamentary noise the key drivers today.

Across the Pond, economic data is limited to November existing home sales figures and 3^rd quarter current account data that are likely to be ignored by the markets, with the FED interest rate decision and the all-important FOMC economic projections in focus through the day.

In the September quarter end, the FOMC projections pointed to a further 3 rate hikes for next year, while there are some who question whether the FED will make a move this month. The FED projections on both the rate path and the economic growth figures will be key for the Dollar and the equity markets, assuming they make a move this month.

U.S President Trump has made things a little more difficult by calling for a hold on rates as recently as Monday, with an unexpected hold later today likely to bring into question the FED’s independence. There have only been few FOMC members calling for a pause this month, so an actual pause would be a surprise for the markets and would certainly hit the Dollar.

At the time of writing, the Dollar Spot Index was down 0.22% to 96.890.

For the Loonie, economic data scheduled for release later today includes November inflation figures that will have an impact on the Loonie, though with concerns over the economy and the slide in crude oil prices, the response may not be as pronounced as usual.

The weekly EIA crude oil inventory numbers will provide direction outside of the stats, while the effects of softer inflation numbers may be offset by a dovish FED, should the economic projections call for a pause in rate hikes next year.

The Loonie was up 0.10% to C$1.3453 against the U.S Dollar at the time of writing.