Intraday Market Thoughts

Fed's Low Rate Outlook Thumps Dollar, Lifts Metals

by Adam Button
Jan 26, 2012 1:25

The US dollar tumbled after the FOMC while NZD picked up some gains on a less-dovish statement. AUD and CHF were the best performers while USD and JPY lagged. Australia is closed along with China on Thursday. The highlight is Japanese corporate service prices. 2 See the latest progress on our Premium trades below. 2 EURUSD longs hit all targets, while the one short has kicked in. More details on rest of the trades is found below.

The main takeaway from the Fed meeting is that rates are likely to stay low for a longer period than expected and that QE3 has grown more likely.

The Fed said the subdued outlook for inflation is likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. The previous statement indicated low rates until at least the middle of 2013.

Growth was downgraded this year and next as well. The forecast for 2012 was lowered to 2.2%-2.7% from 2.5%-2.9% in November. In 2012 the range was lowered to 2.8%-3.2% from 3.0%-3.5%.

The dollar tumbled upwards of 100 pips on most crosses with EUR/USD jumping to 1.31 from 1.2950. Gold surged $50 to $1710 a five-week high.

On the positive side, the unemployment was lowered slightly.

The market is sensing some additional monetary easing in the form of MBS purchases. Bernanke said there is a case for more easing if inflation remains below target for an extended period and employment progress is slow. The Feds inflation forecast is 1.4%-1.8% this year and 1.4%-2.0% in 2013.

In a historic step, the Fed unveiled an inflation target of around 2% in its first ever goal-and-policy statement. The informal target had always been seen slightly lower.

Another first came with anonymous FRB forecasts. Three of 17 members see hikes in 2012; 3 more in 2013; 5 in 2014.

The RBNZ held rates at 2.50% as expected but expectations for a cut in the second half of the year were dialed back. Now, market participants are talking about hikes later in the year. NZD/USD hit a 10-week high of 0.8190 after the release.

With China and Australia closed for holiday, the Asia-Pacific session could be very quiet. The focus stays on New Zealand with the 2330 New Zealand business PMI. At 2350, Japan releases the December corporate service price index. Expectations are for a 0.1% y/y decline.

Both EURUSD trades hit all targets, 1 short is in progress. Both

USDCAD longs are in progress (one of which missed final target by 2 pips), and so is the oil short which missed the final target by 10 cents). Both ESH are in progress as are the 2 AUDNZD trades. Our USDJPY short and gold shorts were stopped out For more details on these trades, click here: To subscribe, pls click here:


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