Pre-Fed Vigil Begins, RBNZ Holds

Currency trading was choppy on Wednesday as the market prepares for the FOMC decision. The euro was the top performer while the Canadian dollar lagged. Early in Asia-Pacific trading, New Zealands central bank held rates as expected. Last nights Premium Insights from Ashraf include USDJPY, EURUSD, AUDUSD, GBPUSD, Gold and oil. See below for access.

The euro slipped back to 1.2876 after the post-German-decision rally to a four-month high of 1.2936. Afterwards, trading was indecisive around 1.2900 ahead of the FOMC decision.

There are no market-based estimates of the likelihood of QE3 on Thursday but surveys of economists and other market participants range from 50% to 80%. Either way, the US dollar will be for a wild ride in the day ahead.

The lone US data point on Wednesday was July wholesale sales, which declined 0.1% compared to the 0.7% rise that was expected. The inventory-to-sales ratio hit the highest since 2009 a potential red flag for US growth.

Broad European sentiment continues to improve but there are signs Spain may be reluctant to ask for aid. French officials publically urged Spain to turn to the ESM which suggests private efforts may have been turned away. Spanish 10-year yields were down 7 basis points on the day to 5.63%.

The S&P 500 touched a fresh 4-year high and closed 0.2% higher to 1437.

The RBNZ left rates at 2.50% in early Asia-Pacific trading and said it was appropriate to leave policy unchanged. The statement lamented the high NZD but the market barely moved on the report, with NZD/USD stuck at 0.8200.

At 0100 GMT, Australian releases September consumer inflation data. The prior reading was 2.4% y/y

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-AB