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Collinson FX: Sept 28, 2018 -Dollar rebounds strongly

by Collinson FX 28 Sep 2018 04:54 PDT 24 September 2018
Black Jack gybes - Hamilton Island YC - Hamilton Island Race Week - Day 4 © Richard Gladwell

Collinson FX: Sept 28, 2018 - Dollar rebounds strongly

The Dollar rebounded strongly, as the reality of the FOMC statement, was consumed and digested. The Fed raised rates and confirmed the probability of another before years end. The following year looks to hold the prospect of a further three rises in the 2019 year, returning to a projected 3%, or ‘normal monetary policy’. This is a reflection of the booming US economy and should support a strong Dollar for some time to come. This has been reflected in the Dollar, with the EUR retreating to 1.1660, while the Yen traded 113.40. The contrast is palpable. The ECB and Bank of Japan both remain drowned in QE. They remain in a different monetary cycle.

The RBNZ, in contrast, left rates unchanged and indicated they would remain extremely accommodative for a long time to come. The RBNZ has in fact said it would consider interest rate cuts, if the economy demanded it! The immediate impact was minor, as it was in line with expectations, but overnight the market bought the Dollar across the board. The NZD fell back to 0.6600, while the AUD tests 0.7200, on the downside. The US economic data remains strong and reinforces the Fed’s behaviour.

Trade again dominated markets overnight. Trump accused the Chinese of political interference in the US election process, by targeting politically sensitive States for tariffs. The Chinese have denied the evidential truth. The tensions are rising and speak to a further delay in a final settlement, which damages trade dependent nations, including Australia and NZ. Trump also says he refused to attend a one-on-one meeting with Canadian PM Trudeau, citing Canadian negotiators and unwillingness to compromise. The good news was the Japanese agreed to trade talks with the US.

Trade remains the dominant issue now Central Banks have interrupted. The trade agreement will be resolved, but the coming Mid-term elections in the US provide opportunities for leverage, so it may be until November? Trump is exerting pressure on Trading partners and the Fed, but the booming economy ensures Dollar strength. Commodity currencies will remain under pressure until a resolution is found!

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