The Fed meeting did not bring any surprises. As expected, the regulator lowered its key interest rate by 0.25% to 2.00%, but their leader Jerome Powell made it clear that the launch of a new asset purchase is expected. In fact, he said that the Fed will begin the fourth round of the quantitative easing program. In any case, the markets appear to be so.
Indeed the words of the head of the Central Bank of the United States stirred up the markets. American stock indices crawled up against the backdrop of his words, but they couldn't add significantly as Powell, following the promises, did not reveal the details of the new stimulus measures. He only hinted that "it is quite possible for us (the Fed) to renew organic balance growth earlier than we thought." After these words, investors tried to listen to what he said to understand when to begin but they never listened. Powell was limited by the fact that the decision on incentives will be taken between meetings of the regulator. It seems that the fed's QE4 will be decided on only after a significant deterioration of the U.S. economy.
Again, this uncertainty put pressure on the local stock market, and the American dollar managed to maintain its position in the foreign exchange markets as a whole, although it remained in the red to the basket of major currencies.
In General, evaluating such investors' eagerly-awaited event, the meeting of the Federal reserve, it can be argued that it has not actually brought anything truly important, but just regular words and vague promises. Observing this whole picture, we note that the indecision of the Fed and its leader personally can be explained by the ambiguity of the outcome of the trade war between Washington and Beijing. The general prospects for the growth of the world economy and the impact of the customs war on inflation in the United States.
We have repeatedly pointed out earlier that Powell's words signify the bank expecting inflation to grow based on this factor. The increase in customs duties also carries the cost of imports, which, of course, contributes to the promotion of inflation. By the way, the US still imports more than they export. In this case, according to monetarist views, lowering rates is in contradiction with the need but on the contrary, raise them to curb inflation.
Given this state of uncertainty, we can assume that in the near future the dollar will at least be held at about current levels in relation to major currencies. At the same time, we should recognize that the local market share or by injecting fresh air in the form of lower borrowing costs to climb higher.
Forecast of the day:
The AUD/USD pair is trading lower with the expectation of a continued decline in RBA rates. At the same time, the Fed did not give a clear signal on the likely start of a new program to stimulate the country's economy. We believe that the pair needs to be sold either at a pullback, from about 0.6800.0 or at the continuation of the decline below the level of 0.6785 with a probable target of 0.6700.
The USDCAD remains in a short-term uptrend. If the price of oil does not continue to rise, we expect that the price will resume its growth to 1.3345 after the likely decline to 1.3255.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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