NZD buoyed by firming Fed rate cut expectations

Key Movers

What a 24 hours! A deluge of key risk events drove action across majors through trade on Wednesday, headlined by the Federal Reserve Open Market Committee (FOMC) meeting and the Bank of Japan policy update. The Bank of Japan (BoJ) elected to raise rates by 15 basis points, lifting the underlying cash rate to 0.25% while laying out further plans to normalise its monetary policy platform and reduce bond purchase over the next 2 years. The yen lurched upward following the policy announcement, extending gains on comments from the BoJ Governor Ueda. Ueda said, that “we still have some distance to reach the neutral range”, suggesting additional rate hikes will follow. Japanese yields moved higher. In contrast, US treasuries fell after the Fed’s FOMC policy statement. Rates were unchanged but a shift in the tone elevated expectations for a rate cut in September. A softening in the Fed’s stance signals it is focused on its dual mandate and not just inflation helped cement calls for an imminent policy change. The USD is generally weaker, slipping below 150 against the yen while giving up 1.2850 to the GBP and allowing the euro to consolidate above 1.08.

Our attentions turn now to the Bank of England policy meeting. The market is divided as to whether policymakers will cut rates by 25 basis points, while US manufacturing data could prove key in shaping US yield action.