US Dollar Eyes Fed‘s Evans Speech After Bullard’s Commentary

FEDS EVANS COMMENTARY, US DOLLAR – TALKING POINTS

• US Dollar traders eyeing Feds Evans speech

• Feds Bullard yesterday radiated neutral tones

• RBNZ slashes OCR by 50bp, spooked markets

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APAC RECAP

Early into Wednesdays Asia Pacific trading hours, the New Zealand and Australian Dollars were dealt a blow by an unexpectedly more-dovish Reserve Bank of New Zealand. The RBNZ cut the Overnight Cash Rate by 50bp, surprising market participants of whom the majority had priced in only 25bp cut. Excerpts from the monetary policy statement subsequently spooked markets and caused AUDUSD to plunge to 10-year lows.

US DOLLAR EYES CHICAGO FED PRESIDENT CHARLES EVANS COMMENTS

While the market reaction to St. Louis Fed President James Bullard‘s comments was fairly muted, the actual underlying message was quite telling. How he brushed off recession fears and the inversion of the yield curve suggests he is not overly worried about the current outlook. But that’s not to say hes happy about it. Tepid inflation and ongoing trade uncertainty remain key headwinds and he alluded to possible policy changes ahead.

He made it clear, however, that the Fed cannot respond to day-to-day trade developments and believes the central bank should not respond to knee-jerk reactions in the stock market. He also mentioned that the Fed has adjusted to trade uncertainty. This echoes Chairman Jerome Powells comments at the most recent FOMC meeting where he mentioned that the rate cut was serving as an insurance against future downside risks.

Markets will now be turning their attention to Chicago Fed President Charles Evans‘ media breakfast event. It will be interesting to see whether Mr. Evans’ tones will echo Mr. Bullards neutrality. If so, equity markets may express some panic from the idea that the prospect of lower borrowing costs may not be coming as soon as they would hope, much like they did at the most recent FOMC rate decision.

CHART OF THE DAY: AUDUSD REACHES 10-YEAR LOWS AFTER RBNZ SPOOKED MARKETS