US markets took off this morning after the Fed delivered a much more dovish statement than expected. They removed the wording of gradual rate increases which had been such a feature of any Fed comment in 2018 and advised that they will be patient on future moves and flexible with regard to reducing the balance sheet. The US indices surged to the topside, Nasdaq leading the way once again finishing up 2.2% with the Dow and S&P closing up 1.77% and 1.55% respectively. Treasuries drove higher and the dollar dropped sharply with the Dxy closing the US session trading down at 95.40. Commodities gained against the weaker dollar, Gold now up to 1320.0 and Oil pushing up with WTI now up through $54/b.
The stars aligned for a stronger Australian dollar yesterday as it experienced it’s biggest gain since early Jan, rising over 1.7% on the day after a better print in domestic CPI and a more dovish Fed. Commodities, risk appetite and Emerging markets also took on a bid tone after the Fed meeting and this added to the Aussie’s allure. Traders will be positioning themselves for more strength over the coming sessions, however there are a couple of potential stumbling blocks or even walls that the currency could encounter in the coming days. Firstly the ongoing trade discussions between the US and China could lead to further confrontation which would lead to a sharp turnaround in investor optimism, secondly we have the crucial US jobs data due out on Friday which has always been capable of throwing a spanner in the works of all the best trading plans. If we finish the week without too much of a downturn from these risk events, then expect the Aussie to remain the currency of choice for FX bulls as we move into the new month.
Looking ahead to today’s trading and Asian markets are set to open firmly in the black after the moves in the US, later in the session we have Chinese Manufacturing PMI data due but apart from that it’s relatively quiet in terms of data releases. In the London session we have a raft of Flash GDP numbers due out of Europe and investors will be looking for further signs of weakness on the continent . The focus will move to Canada on the US open with the release of the latest GDP numbers, however expect investors to be keenly observing the trade negotiations in Washington with any progress, or lack of it, possibly having more impact on the markets than the Fed.