Why did the FOMC meeting affect the growth of the US dollar?
USD rose after FOMC
While there were no major surprises at the Fed meeting, it paved the way for higher yields and a rise in the US dollar in the foreign exchange market, forcing stocks to return their previous gains to the stock market.
Closing USA Wednesday spot market:
- The Dow Jones Industrial Average fell 129.64 points (-0.38%) to close at 34,168.09.
- The S&P 500 lost -6.52 points (-0.15%) to close at 4,349.93.
- The Nasdaq 100 rose 23.637 points (0.17%) to close at 14,172.76 points.
Futures in Asia:
- Australian ASX 200 futures fell 0 pips (-0.1%), spot market now valued at 6,961.60
- Japanese Nikkei 225 futures down -80 points (-0.3%), spot market currently valued at 26,931.33
- Hong Kong Hang Seng futures are down -3 points (-0.01%) with spot market now valued at 24,286.90
- Chinese A50 futures down -39 points (-0.26%), spot market currently valued at 15,187.31
The Fed left rates at the same level, as many expected, although it may start raising them at the next meeting. And raising them at every FMC meeting is also not out of the question. In addition, the purchase of balance sheet assets will be completed in early March, and as soon as the first bull run ends, the balance sheet reduction may begin (presumably after March).
Investors quickly dumped bonds, which led to a sharp increase in yields. Two-year US bonds rose 12 basis points to around 1.15%, the highest level since February 2020. US indices returned to previous gains after receiving a memo that corporate profits are likely to be cut to levels as higher rates push up debt repayments. At the close, the S&P 500 was down 0.15%, despite an initial 3.4% gain.
US dollar rises after hawkish Fed meeting
The US dollar (USD) was the strongest currency in Forex with the prospect of higher rates, and the Dollar Index (DXY) easily overcame the resistance of the trend and reached a monthly high. The USD/CHF rose again above the 200-day moving average and hit a 2-week high, while the AUD/USD returned to Monday's low after finding resistance once again at a broken trendline on the daily chart. We suspect AUD/USD could head towards 0.70 just above key support at 0.6698.
Our attention was drawn to the pattern in the USD/JPY pair. The pair bounced back to the pre-meeting low at 113.48, but as the level held, it has now turned into a double bottom ahead of the trend line break. The double bottom is above the 100-day moving average EMA and yesterday's bullish candle closed above the 50-day moving average EMA and the trend line. As a buy signal from the Stochastic indicator also appeared around the swing low, we are now bullish above 1.13.48, although we would not like prices to return below yesterday's low and we could see any subsequent recovery at yesterday's level. . range to hold above 114 which is close to the 50-day moving average EMA at 115 and is now an interim target, but may be able to retest 116 given the yield difference for the 2-year US-JP spread.
Bank of Canada rates unchanged (not as expected)
The Bank of Canada made a mistake with preventive bulls, keeping rates unchanged at 0.25%. This caused the USD/CAD pair to bounce back above its 200-day moving average EMA and form a bullish outside day and likely move towards 1.2560. USD/CAD could close much higher if crude oil prices didn't make new highs. Futures for WTI crude reached $88 for the first time since October 2014.
New Zealand quarterly inflation slows down in Q4
Inflation in New Zealand in the fourth quarter was broadly in line with expectations. Quarterly figures fell to 1.4% from 2.2%, although this was slightly higher than expected 1.3%. The annual rate exceeded forecasts by 5.7%, rising from 4.9% to 5.9%. As it stands, the 6-month OIS (Overnight Indices Exchange) has already fully priced in two more increases, and we doubt these numbers reduce the chances of a zero increase, especially now that the Fed is hawkish. The NZD pairs did not react much as the decline in forex volatility manifested itself after the FOMC meeting. NZD/USD remains below key resistance around 0.6700 after breaking lower from last week's bullish channel.
Matt Simpson, Forex.com » Official Website
Disclaimer. The information and opinions contained in this report are provided for general guidance only and do not constitute an offer or solicitation to buy or sell foreign exchange contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and shall not be liable for any direct, indirect or consequential damages that may result from anyone relying on such information.