On balance, the FOMC statement last night was taken as slightly hawkish given the upward assessments of both the economy and labour market in their respective descriptions. But the fall in market based measures of inflation expectations was noted in the statement as being substantial. Indeed, the Fed’s favoured measure is now at levels last seen Feb-Mar 2009, which is when most central bank started QE with a vengeance.
The shift in the RNBZ overnight cannot be overlooked, given that they moved from expecting “some further increase” in the cash rate at a later stage, to expecting to keep it on hold “for some time”. This has increased the prospect of the RBA cutting rates from 2.5% next week, although this is not yet a done deal. The Aussie though is vulnerable, even if rates are kept on hold, given the risk of a more dovish statement. AUD just holding above 0.78.