Current Market Sentiment:

The FOMC statement mentioned that labour market conditions had continued to improve but inflation is expected to remain low in the near term due to further declines in energy prices. They repeated that hikes will be gradual and global economic developments are being monitored closely, suggesting that further market uncertainty will impact the Fed’s rate path. They also omitted last month’s phrase that risks are balanced. The full statement can be read here. The statement showed a slight shift towards a more dovish tone, following on from the December outlook. Jon Hilsenrath’s interpretation can be found here. Dollar pairs saw volatility after release but there was no sustained direction as the statement makes little fundamental change to the USD outlook.

During the early Asian session, the RBNZ left rates on hold as was expected however the Kiwi declined with due to the dovishness of the statement. The Bank said that additional depreciation of NZD was necessary and that further easing may be required this year. As will many central banks, they conceded that inflation will take longer than previously anticipated to reach target. NZDUSD fell 100 pips from NY session highs, while AUDNZD is up 185 pips from yesterday’s pre-AUD CPI release lows.

This article originally appeared at Jarratt Davis.