|Fed interest rate decision||China’s steel demand|
|Bad news Down Under||ECB rate cut coming?|
|All economists’ eyes will be on the Fed today, as an interest rate decision will be released at 2 pm, EST. While it is almost unanimous among economists that the interest rates will remain unchanged, the accompanying report will be combed through in order to glean the direction of monetary policy. If the wording makes it sound as though global growth may not be in such danger, as was a concern cited in September, we could see expectations move toward December for a possible rise in interest rates.
A big news item this morning is that the Chinese demand for steel is collapsing. This is caused by less demand and more supply, and exacerbated by multiple rate cuts from the People’s Bank of China. This one-two punch will be felt strongly in Australia, which exports half of the world’s iron ore. Australia’s CPI, an indicator of inflation, came in at 1.5%, thus falling short of the 1.7% growth consensus.
The European Central Bank is expected to cut the already negative cash rate in December, from -.2% to -.3%. Deutsche Bank believes they will do this in December, and the market is now pricing in a 50% possibility that this happens. If this occurs in tandem with an increase in the ECB’s bond buying program, we could see a massive hit to the euro.
EURUSD has been strengthening this morning, as investors believe that the U.S. will hold interest rates unchanged. In addition to the more immediate expectation, it seems that investors are beginning to rule out the possibility of a rate hike in December. They seem to expect the notes from the Fed today to show continued weakness in the global economy.
GBPUSD is off a bit this morning, and has been on a steady downward trend for the past 5 days. We won’t see any big economic data out of the U.K. for the rest of the week, so it is likely that downward drift will continue.
USDCAD is off again, as the USD is weakening ahead of the Fed interest rate decision. The CAD has been weakening for the past five trading days, however, so if all things remain the same the CAD could continue to go lower after the Fed speaks.
AUDUSD is the punching bag this morning, falling 1.2% at one time this morning after China’s decline in steel demand was shown to be worse than previously thought. In the past year, the AUD has declined in value almost 19% against the US dollar.