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Currency Market Analysis

Jul 19, 2019 | Currency Market Analysis

Global Themes

Aussie charges up to 3-month highs as Fed board members push for more aggressive policy

The Aussie dollar charged to the best levels seen in near 3 months after two senior Federal reserve members, John Williams and Richard Clarida, said policy makers need to act early to avoid long term low inflation. In separate speeches, they stated that when rates and inflation are low, that is not the time for reserve banks to keep their “powder dry”.

 The market interpreted these comments as a sign the Fed will look to cut rates more quickly and aggressively in their up coming meetings. This pushed the USD lower and boosted global growth hopes. 

The AUD was higher against most currency crosses. 

How low will they go?

The market is fully expecting a 25 point rate cut from the Fed at their July 30/31 meeting but expectations among interest rate traders of a 50 point cut have grown significantly in the last 24 hours. 

A 50 point move would be a large divergence from traditional Fed action as they’ve tended to prefer consecutive 25 point cuts to stoke growth. 

Coming up

In the near term, market chat will focus on the July 30/31 Fed meeting but there is still some data to be released over the weekend. 

German producer price index and European current accounts will provide an indication on the health of the European economy.

By Lachlan Bull, Corporate Foreign Exchange Dealer

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