Market Review: UNITED STATES FOMC MEETING MINUTES
Economic calendar (highest volatility): 20th August – 24th August 2018:
This month, the United States (U.S) Federal Open Market Committee (FOMC) raised Interest Rates largely as anticipated, bringing up the benchmark rate to 2% from the former 1.75% level. Interestingly while this decision largely met forecast, the tone of the regulators suggest that two more U.S Interest Rate hikes are likely to take place this year. This brought about sustenance in the U.S Dollar's (USD) value and avoidance of a 'sell on fact' currency play, as the formerly vague expectations for four Interest Rate hikes to take place this year has now been largely reaffirmed. The U.S Dollar Index (DX) fell for on a Friday-to-Friday basis to close at 96.13 on Friday, pressured by weak U.S. economic data. The University of Michigan said its consumer sentiment index in August fell to 95.3, down from 97.9 in July. That was the lowest level in 11 months and did little to encourage traders to back the dollar. The US Dollar also fell from an 18-month high on hopes for trade war de-escalation. Despite the weakening U.S Dollar this week, the team here at FintechFX view that the trade negotiations, particularly the progress made on the trade agreements between the U.S. and European Union in July where the U.S. and EU agreed to a zero tariff deal and ironed out issues related to trade barriers and subsidies, as well as the progress in tariff disputes between the U.S. and its trading partners China and Mexico, could bode well to the USD's strength moving forward. Chinese and U.S. negotiators are planning talks to resolve their trade row ahead of meetings in November, the Wall Street Journal reported on Friday. Additionally, Mexico's economy minister, Ildefonso Guajardo, said he hopes to wrap up outstanding bilateral issues on the North American Free Trade Agreement (NAFTA) by the middle of next week.
Nonetheless, the team here at FintechFX view that worries of escalating trade wars with neighboring countries like Canada could be a longer-term negative for the USD as currency markets in general, do not favor any forms of trade intervention. U.S. President Donald Trump launched a fresh auto-tariff threat against Canada on August 11 at a time when Ottawa finds itself in a holding pattern on NAFTA negotiations as it awaits the completion of one-on-one talks between the U.S. and Mexico. To complicate matters, the already rocky Canada-U.S. relationship has deteriorated since the partners suspended NAFTA talks in the spring. Trump also slapped Canada and other allies with steel and aluminum duties, which led to retaliatory levies from Ottawa. He has also made repeated threats to apply far more damaging tariffs on the deeply integrated automotive sector. And in June, Trump called Prime Minister Justin Trudeau “very dishonest and weak” shortly after he left the G7 meeting in Quebec. Trade wars carry a major risk of escalation that could weaken investment, unsettle financial market and slow global economy.
In regards to this week, the Australian Dollar (AUD) and Great Britain Pound (GBP) will probably be one of the most-watched currencies, ahead of the release of the Reserve Bank of Australia’s Monetary Policy Meeting Minutes on Monday and also increasing concerns of the possibility of a no-deal Brexit. The recent announcement by the U.K. government that it will be releasing a series of no-deal Brexit papers to highlight the potential disruptions in the event of the U.K. leaving the EU without a withdrawal agreement also added to uncertainty about Brexit talks. The team here at FintechFX view the Canadian retail sales figures to bring about substantial market volatility to the Canadian Dollar (CAD) during the week as any spike in inflation that would trigger an acceleration of the pace of interest rate hikes by the Bank of Canada.
This week, the AUD/USD presents traders with some trading volatility as there stands to be certain crucial Australian Dollar (AUD) related data scheduled for release. The Reserve Bank of Australia’s Monetary Policy Meeting Minutes is due for release on Monday and the team of us here at FintechFX view that the bearish tone out most of the Australian committee members is set to continue. Nonetheless, the AUD in our opinion, is still highly undervalued and shows some signs of rising this 2018. In the light of a potentially more hawkish statement moving forward, the market is looking at the AUD/USD to regain some of it's strength which has been lost throughout the years. However since the marker still remains largely focused on USD's strength, the team here at Fintechfx view some continuity for the AUD/USD to break past crucial levels and head towards new lows as indicated in the chart below.
Taking a slight recap on the USD/CAD, the team here at Fintechfx would like to highlight that the Bank of Canada (BoC) has recently raised Interest Rates from 1.25% to 1.50% in July, bringing them closer to the benchmark rate of their neighbour, the U.S. Nonetheless, the team notes that a 'sell on fact' play was witnessed straight after reinforcing our views that the USD strength largely outweighs. In addition as of late, the Canadian Dollar (CAD) has largely been affected by two catalyst, notably the actions taken by the U.S on wanting to impose tariffs on Canadian steel and aluminium as well as the fall in global oil prices. Therefore for the week, the team here at FintechFX view the USD/CAD to rise further, although perhaps a little more rangebound pending the U.S FOMC statement release.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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