AUD jumps after Fed meeting

Four key markets in focus today.

AUD/USD

AUD/USD has been the best performing pair on the day, gaining 1.8%. The high has been 0.9529 and the AUD bulls will be eyeing the June high of 0.9606, although some will also be hoping for a squeeze longer term to the 200-day moving average at 0.9875. The fact that the Fed kept its asset purchase program at $85 billion a month has surprised the market and we now think the Fed will wait until December before giving further consideration to tapering its bond buying. Traders will be eyeing emerging market currencies today, like the Indonesian Rupiah and the Indian Rupee, to spur on further buying of the AUD. The question traders are now asking is whether the AUD/USD sees the RBA ramp up its FX rhetoric.

Japan 225 (Nikkei)

The Japanese equity market looks set to diverge from USD/JPY, with an open above 14700 expected. USD/JPY traded to a low of 97.81 on the back of the more dovish stance the Fed took. US treasury yields fell to a low of 2.67% (down from yesterdays close of 2.84%) and this has clearly taken the wind out of the USD’s sails. At 09:50 AEST today we get Japanese trade balance figures and while the market expects a slight widening of the deficit; we doubt this print will play too heavily into price action. The question traders are now asking is whether the Fed meeting is a game changer for the USD and we feel in the short term the USD goes back to becoming a funding currency for the carry trade.

Spot gold

Gold has been the clear beneficiary of the Fed’s dovish stance, hitting a high of $1367.67. After losing nearly 10% through August, gold has retraced over 50% of these losses. In fact gold had its 11th best day since 1990 (according to the FT) and thus we feel the case for a move to $1277 has diminished. Bad news is once again good news for commodities traders.

US 500 cash

The FOMC decision to not cut the pace of bond buying was certainly on the more dovish side of expectations. If you add in downgrades to the central bank’s growth forecasts and no change to forward guidance, you can see exactly why the S&P 500 rallied to a high of 1729, before closing the day at 1725. The fact the US market rallied 1.2% makes the overnight move the best Fed performance since September 2012. Traders should be looking to buy pullbacks in equities here as the ‘Bernanke put’ is once again alive and well.

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