18th October 2018
Early this morning the AUD briefly touched just above 0.7150 against the USD. ‘Briefly’ being the key word here, as it quickly retreated and is now back in a familiar zone, trading around 0.7120.
FOMC (Federal Open Market Committee) minutes were released overnight, which showed a few Fed officials indicating that the federal funds rates needed to rise above their initial assessments of its longer-run level. Why? To reduce the possible risk of overshooting their 2 percent inflation objective.
These interest rate levels could be described as restrictive, especially when compared to the accommodative levels we’ve seen for the last decade or so.
These comments are interesting, especially considering President Trump’s recent penchant for calling out the Fed, warning that if rates risk too quickly, and/or by too much, there could be a negative impact on the US share market.
For now though, it appears the Fed will continue hiking interest rates.
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After a relatively tumultuous time last week, the share markets have also settled down slightly.
Back on Aussie shores, we saw the release of employment data today. The market was expecting to see around 15,200 jobs added in September. The figure actually came in at 5,600, after a whopping 44,000 jobs were created in August.
The unemployment rate declined to 5% which is the lowest level in six years and right on the Reserve Bank of Australia’s (RBA’s) soft target for unemployment. Even so, there wasn't much movement for the AUD, as the unemployment rate decline appeared to be connected to a lower participation rate, down from 65.7% in August to 65.4% in September.
The RBA also released its October monetary policy statement on Tuesday afternoon. They remain confident about Australia’s economic outlook, and expect above trend growth over the next few years.
It is also expected that the next interest rate move will be an increase, however, there isn’t a strong case for doing so in the short term due to low wage growth and inflation. If this is the case, interest rates look to stay around 1.5%.
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Definitions for those of us playing at home:
Federal Open Market Committee
The FOMC is the Federal Open Market Committee. A 12 person body that focuses on monetary policy in the United States.
Unemployment Rate = Number of Unemployed Persons / Labor Force.
The participation rate is defined as the labour force (persons employed vs. unemployed) expressed as a percentage of the population.
RBA - Reserve Bank of Australia
The bank conducts the nation’s monetary policy, as well as issues its currency.
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