Fed minutes weigh on risk assets

The main event of the week on the US economic calendar has come and gone, but failed to provide any real fireworks in markets (which are beginning to look exhausted).

  1. US dollar strengthens on Fed minutes
  2. AUD in focus ahead of jobs numbers
  3. Local market facing a weaker open

The main take away from the FOMC minutes is that the majority of members expect tapering by the end of the year and for purchases to end around the middle of next year. This saw the greenback bounce after having slumped on the Janet Yellen appointment news, with the dollar index putting on 0.4%. The Fed would want to see growth tracking above 2% year-on-year and unemployment consistently dropping before tapering.

However, given the current state of political affairs in the US, there will certainly be scepticism around how soon tapering will occur now. Many analysts actually feel we won’t see tapering until next year now. The fact that the Fed re-emphasised its dependence on data points towards a wait-and-see approach, particularly given the impact the current political stalemate will have on data releases in the near term. USD/JPY momentarily spiked to 97.65, but this move didn’t last long as the pair has now retreated to 97.38. This USD strength will give Japan a kicker today with the Nikkei pointing up 0.7% to 14,100. At 10:50 AEDT today we get the latest read on the weekly fund flow data, with traders keen to see how Japanese institutions are positioned in regards to buying or selling of foreign assets. Good levels of buying of foreign bonds and equities should push up USD/JPY and subsequently the Nikkei.

AUD in focus ahead of jobs numbers

Risk currencies were weaker against the greenback on the minutes and AUD/USD dropped to around 0.942. The pair is now hanging around 0.944 ahead of today’s jobs numbers release. AUD/USD continues to hold in its new trading range between 0.93-0.95 and has been resilient all week. At 11:30 AEDT we get the latest read on Australian employment, with the market expecting 15,000 jobs to be created and unemployment rate steady at 5.8%. The analyst’s range on the jobs numbers is wide, with Market Economics calling for 45,000 jobs created, while Goldman Sachs is the lowest with zero jobs. We feel the recent RBA statement significantly reduces the downside risk on the AUD to disappointing local data releases. The RBA maintained a neutral stance and failed to warn on recent FX appreciation.

Local market facing a weaker open

Ahead of the open we are calling the local market down 0.4% at 5,134. The renewed US dollar strength is slightly negative for risk given the minutes’ emphasis on tapering. However, this trade might unwind the longer the shutdown stretches on and threatens to see US growth fall below the Fed’s projected run rate. Additionally, the fact that Janet Yellen has been confirmed as the next Fed chair will see growing calls for no-tapering until the fiscal threat is properly alleviated. BHP’s ADR is pointing to a 0.4% fall to 34.70.

Atlas Iron’s price action is looking interesting after the stock broke through a long term downtrend resistance line yesterday. Meanwhile, gold was sold off on the back of USD strength and this will weigh on gold names like Newcrest today. NCM has also been raised to Hold (from Sell) by Deutsche Bank. Bank of Queensland is one to watch after releasing its FY earnings today.

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