Early this morning the U.S Federal Reserve led by Janet Yellen decided to lift rates by 25 basis points while also providing a reasonably hawkish (positive) rhetoric about the future of the U.S economy, inflation and therefore interest rates. But while this was expected the resulting move on markets was not; in fact markets did the complete opposite of what the text books will tell you should have happened. Basic economic theory suggests when interest rates go up and are expected to continue to move higher then typically the local currency, in this case the USD should rise while equities should fall as the higher funding rate makes doing business more expensive. However, we saw (as suggested above) the opposite happen overnight, with the US Dollar index falling quite dramatically, while U.S stocks surged ahead by as much as 1.6%.
Also strange was AUD rallied across the board while the Gold price rallied by nearly 2% which is typically a sign of increased risk aversion….Overall a very confusing night for markets and perhaps looking a little bit like the movie Split with lots of different personalities going on.
DATA RELEASES TODAY:
AUD – Employment Figures at 11.30am
JPY – Interest Rate decision
GBP – Interest Rate decision at 11.00pm
USD – Building Permits & Manufacturing Numbers at 11.30pm
AUD EXCHANGE RATES:
AUD/USD – 0.7667
AUD/GBP – 0.6232
AUD/EUR – 0.7144
AUD/NZD – 1.0900
AUD/JPY – 89.941
***Above rates are indicative wholesale rates and intended as a guide only***
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Senior Corporate FX Dealer
Phone Patrick – 0431 278 632