Aussie dollar crushed to new 6 month low as the USD sweeps all before it after the FOMC

September 18, 2014

What a wild and crazy couple of hours we had early this morning after the release of the FOMC statement and then Janet Yellen’s press conference. The markets emotions were clear in the fractious and erratic trade we saw in the Aussie dollar in the two hours between 4 and 6 am.

The Aussie has now been crushed to new lows for this run and the past 6 months or so and it sits at 0.8950 this morning.

I remain short and continue to hold the view the Aussie is  heading into the 85-87 region in time.

Looking at the specifics of the FOMC and we see that there are a few things which it made clear. Firstly, that the Taper will end next month, secondly that rates are likely to increase next year and thirdly that the plans to exit QE are well advanced.

As noted above the USD was dominant on currency markets with the Euro down 0.7% to 1.2867 from a high of 1.2981 last night. That is a big selloff!. Sterling is down at 1.6280 and USDJPY sits at 108.29.

1.2740/50 is the next target and if it gets through there watch out.

Looking at stocks in the US and we see that they had an erratic day too with the market hitting new all-time highs before pulling back into the close. Like currency markets traders on the NYSE seem to recognise that while Janet Yellen remains a ‘Dove’, in no hurry to hike interest rates, the era of zero rates and QE is ending.

Two things Yellen highlighted which should help stocks even though the game is changing is that there is plenty of room in the labour market and inflation remains quiet. Indeed the CPI for August which was released last night showed no rise in prices which saw the year over year rate of price growth dip from 1.9% to 1.7%. So we end up witha situation where the US dollar is strong and stocks aren’t harmed too much by the FOMC rhetoric.

So, at the close the Dow was up 25 points to 17,157 for a gain of 0.15%, the Nasdaq rose 0.20% to 4,562 and the S&P pulled back from a high at 2,011 to close up 3 points to 2,002.

In Europe the release of EU CPI of 0.1% took the year on year rate to a paltry 0.4% showing how much work the ECB needs to do to avoid turning into Japan. this recognition seemed to help stocks with the DAX up 0.3% to 9,662, the CAC up 0.5% to 4,431% while stocks in the periphery of Milan and Madrid rose 1.56% and 1% respectively. In the UK the selling pre-referendum continued with the FTSE down 0.17%.

Locally the impact has been that the SPI 200 futures for September and December both rose 3 points to 5401 bid. The US rally is supportive of the local market but the the SPI 200 looks like it is sitting on a huge technical level in the 200 day moving average. But as Ric Spooner pointed out in yesterday’s stocks to watch the ASX broke a big level in the physical yesterday. So it will be an interesting days trade today.

Asian trade yesterday was interesting in itself with Shanghai down early but then rallying up 0.5% to 2,308. Hong Kong played catch up to the previous days US rally and its Typhoon induced closure by rising 0.99% to 24,376. In Tokyo stocks dipped a little falling 0.14% to 15,889.

 On commodity markets Newcastle coal lost 15 cents for September delivery to $66.05 while September iron ore was largely unchanged at $84.10 a tonne. With the strength of the US dollar overnight gold fell to $1,222 an ounce, Nymex crude dipped to $93.98 a barrel and copper finished at $3.13 a pound.

On the data front it is a largely barren 24 hours with the exception of the Scottish referendum which has potentially huge implications if the referendum succeeds

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