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By xemarketanalysis September 20, 2017 2:13 pm
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    XE Market Analysis: US Dollar Broadly Lower Ahead of the Fed


    • NZD is out-performing on latest poll showing ruling National Party ahead of Labour. 
    • GBP boosted by strong August retail sales fails to hold gains.
    • AUD testing higher after comments from the RBA's Luci Ellis on the global economy.
    • Brent crude oil prices at highest since July 2015.


    The market pricing for US interest rates out to June next year is only pointing to one interest rate with the June 2018 contract at 98.6. The market pricing works on the basis that 100 is zero, and the difference between 100 and the current reading represents what the market is pricing for the future interest rate to that date. So, the market is currently expecting interest rates to be at 1.4% by June 2018 (100 minus the current reading of 98.6 = 1.4). The current Fed Funds rate is 1-1.25%, meaning the market isn't expecting a hawkish Fed, and any signs that conviction among the FOMC is weakening will likely weigh on the still-fragile US Dollar sentiment. 


    The US Dollar is broadly lower ahead of the FOMC (see highlight).


    The Pound jumped higher after data showing retail sales unexpectedly surged last month with volumes rising 1% month-on-month against expectations of just 0.2%, and July’s were revised up to 0.6% from half that growth initially reported. However, it quickly fell on reports of a suspicious package at one of London's main train stations and has struggled to regain ground. Brexit noise continues to keep traders nervous ahead of Friday's big speech by PM Theresa May.


    The Euro continues to float around the 1.20 level, with investors remaining wary of ECB headlines around the currency's strength. Recent highs of 1.21 are likely to provide strong layers of resistance pending Friday's purchasing manager's indexes. 


    The Canadian Dollar is marginally higher on the day, supported by rising oil prices. Yesterday's comments from Dep Governor Lane regarding the strength of the Canadian Dollar may limit the Loonie's gains in the short term, as the ECB's have the Euro.  


    The Aussie Dollar is one of the day's top performers after the RBA's statement on monetary policy noted the appreciation of the A$ over the course of 2017 had, in large part, reflected a broadly-based depreciation of the US Dollar. This confirms that unlike other central banks, they are quite comfortable with a stronger currency, giving investors greater confidence that the RBA won’t try an talk the currency lower. They also indicated that the strong employment gains will lead to a slow but steady build-up in inflationary pressures, indicating rates will likely need to rise in 2018.


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