Fed hawks remain cautious.  Where will the dollar be heading this week?
A summary of last week’s FOMC meeting, Fed interest rate remains unchanged.  Fed Chair Janet Yellen indicated a rate hike in 2016 is still on the table, if US recovery remains on track.  It is obvious investors will focus on US data in the upcoming months to speculate on the possibilities of rate hike this year. 

There are two more FOMC meetings in 2016.  The November meeting is just before their presidential election, chances of policy changes before such a major political event is low.  That leaves us with only December for any possible rate hike announcement.  If their non-farm payroll remains around 150,000 on average for the next few months, the bet for December rate hike is likely to increase and strengthen the dollar. 

For this week, we have the consumer confidence, core durable goods and final GDP.  Consumer confidence and core durable goods are expected to drop slightly, while the final GDP to remain steady.  If there are no surprises, the dollar could be trading in a range this week.

As mentioned last week, it would be difficult for Bank of Japan not to disappoint investors again.  And true enough, they did.  They only made modest changes to their policy with no indication of any further rate cut.  Although they maintained their inflation target, judging from the current situation, it would be difficult for them to hit their target without more aggressive actions.  A less hawkish FOMC coupled with a disappointing BOJ, drove the USDJPY towards the 100 level.  The 100 level could be an attractive price for the mid and long term investors.

Reserve Bank of New Zealand held their interest rate unchanged as well.  In the official statement, Governor Graeme Wheeler said, “Further policy easing will be required to ensure that future inflation settles near the middle of the target range.”  This sent a strong signal to the market to expect a rate cut again before end of the year.  Since RBNZ has made known their intention, it would be wise to exercise caution before buying the Kiwi and look for selling opportunities after rallies.

There are no central bank policy announcements this week, but heads of central banks are scheduled to speak in various events.  We do not expect them to deviate too much from their policies; Short-term volatility in the currency market may still arise from these speeches.

Our Picks

USD/JPY – Slightly bullish.  Fed rate hike is still on the table.  It would hurt Japan if  BOJ allows USD/JPY to fall below 100.  Can consider placing a mid to long term Buy position around 100 with a stop loss below it.



GBPJPY (Gold) – Slightly bearish.  A strong downtrend with the immediate support around 130.50.  If price breaks the support, it would be a potential breakout trade.



AUD/NZD – Slightly bullish.  Price rallies on dovish RBNZ versus a neutral RBA.  We expect the trend to continue, possible to look to go Long when price retraces towards 1.0450.



Top News This Week (GMT+8 time zone)

US: Final GDP q/q.  Thursday 29th September, 8.30pm.

We expect figures to come in at 1.2% (previous figure was 1.1%).

UK: Current Account.  Friday 30th September, 4.30pm.

We expect figures to come in at -25.8B (previous figure was -32.6B).

Canada: GDP m/m.  Friday 30th September, 8.30pm.

We expect figures to come in at 0.4% (previous figure was 0.6%).



Fullerton Markets Research Team

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