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Currency and Forex Market News - 17 September 2014

Latest news on the web for major world currencies

Dollar climbs with Fed policy language under intense scrutiny

LONDON, Sept 17 (Reuters) - By Anirban Nag

BOJ's easy stance keeps pressure on yen as bill yields turn negative

 - WSJ reports Fed may not sound as hawkish as markets expect
 - Sterling inches up ahead of Scotland vote, implied vols jump

The dollar climbed against most major currencies on Wednesday as investors awaited the Federal Reserve's latest guidance on U.S. interest rates, with many expecting it to discuss steps towards the normalisation of its ultra-loose monetary policy.

The Fed's Open Market Committee (FOMC) will conclude its regular two-day policy meeting later in the session and is likely to discuss the timing of its first rate hike. Policymakers will also release fresh economic and interest-rate projections, extending their forecasts through 2017.

The dollar came under pressure late on Tuesday after the Wall Street Journal said the U.S. central bank may keep the words "considerable time" in its policy statement, which would disappoint dollar bulls hoping for a more hawkish statement.

Markets have been bracing for the Fed to drop its promise to keep rates near zero for such a period after ending its bond-buying programme. Fed officials have said they do not expect to raise rates until 2015, but recently strong U.S. economic data has led some of them to acknowledge they may need to act sooner than they previously thought.

The committee may also alter its depiction of the labour market to suggest further progress towards its goal of full employment.

"There has been some scaling back of expectations, but we are still bullish about the dollar going into the FOMC," said Yujiro Goto, currency strategist at Nomura. "We expect the Fed to start raising rates from next year onwards and there will be changes to outlook to growth, inflation the dots for interest rate changes."

In contrast to the Fed, the Bank of Japan is expected to maintain its ultra-easy monetary stance and could even take additional steps, notwithstanding signs that it could be reaching the limits of its power to reflate the economy. This month, Japan's central bank bought bills at negative yields, essentially paying banks for the privilege of lending them cash.

Against the yen, the dollar added about 0.15 percent on the day to 107.25 yen, moving back towards a six-year peak of 107.39 set last Friday after dropping as low as 106.81 yen overnight. The euro slipped to $1.2955 after climbing to a near two-week high just shy of $1.3000 on Tuesday.


A notable mover was the Australian dollar, which rallied nearly 1 percent to a high of $0.9112 on Tuesday, a turnaround from its 4-percent slide in the past week. On Wednesday, it gave back about 0.2 percent to trade at $0.9075.

The Aussie was helped by media reports that China's central bank is providing 500 billion yuan ($81.35 billion) of liquidity to the country's top five banks through standing lending facilities.

Australia's currency is often used as a liquid proxy for China plays, as the two countries are major trading partners.

Meanwhile, sterling inched up to $1.6295, a day ahead of the Scottish referendum and staying well above a 10-month low of $1.6051 struck last week. It has bounced from those lows after most polls showed those intending to vote to stay in the union were slightly ahead. Nevertheless, the vote was too close to call, leading to a jump in overnight implied volatility, a gauge of how sharp currency swings will be, to 18.6 percent.

The euro was down 0.15 percent at 79.50 pence, with traders now awaiting the minutes from the latest Bank of England policy meeting and UK wages data. At the last policy meeting, two policymakers voted for rates to lifted.

"As such it will be about today's BoE minutes and FOMC announcement. When it comes to the referendum we expect a positive outcome. From that angle we believe buying sterling dips against the euro offers good risk reward," Credit Agricole said in a note.

Aust dollar rallies as Fed rate hike hopes fade


The Australian dollar has rallied to a one-week high as expectations of a change in US Federal Reserve interest rate policy start to wane.

At 1700 AEST on Wednesday, the local unit was trading at 90.71 US cents, up from 89.96 cents on Tuesday.

Speculation had been mounting that the Fed could signal that an interest rate hike may happen sooner.

However, those expectations started to falter overnight, pushing the Australian dollar to a peak of 91.14 cents just after midnight - its highest level since last Thursday.

RBC senior currency strategist Sue Trinh said the statement from Fed chair Janet Yellen, due early Thursday AEST, is expected to reveal a reluctance to move to a rate hiking stance.

"We expect any changes to the statement to be on the margin, and we think the Fed will fall short of altering rate guidance or releasing an updated version of exit principles, which should disappoint the market," she said.

ThinkForex senior markets analyst Matt Simpson said traders will be looking to see if the Fed will remove the words "considerable time" from its statement on keeping the Federal Funds Rate at its near zero level.

"It wouldn't hurt too much to see a US dollar pull back given the greenback has experienced its best bull-run since its May 2011 lows," he said.

"This would help support the Australian dollar above 90 US cents."

Rand little changed ahead of CPI


The rand was slightly weaker on Wednesday morning as news of possible further stimulus measures in the Chinese economy failed to boost the local unit.

Market participants will be waiting for local consumer price index (CPI) figures, due for release at 10am, for direction.

Inflation as measured by the CPI is expected to have moderated slightly to 6.2% year on year in August from 6.3% year on year in July, according to a BDpro median consensus forecast from a survey of 12 economists.

At 8.30am the rand was at R10.9103 against the dollar from a previous close of R10.8969 on Tuesday.

Against the euro, the rand was at R14.1254 from a close of R14.1130 previously and was at R17.7645 against the pound from R17.7105 on Tuesday.

The euro was at $1.2953 from a previous close of $1.2949.

Barclays Research said in an early morning note that although news of stimulus measures in China was rand supportive, there were still a number of risks facing the currency over the coming days.

"We would continue looking to fade rand rallies. More specifically, we expect a larger than consensus domestic consumer price index print today, which could heighten local rate hike fears and in turn make the rand vulnerable to further portfolio outflows from the bond market. And if the tone from tonight’s Federal open market committee (FOMC) meeting proves to be more hawkish than expected, the rand could fall victim to intensifying US policy rate hike fears," said Barclays.

"Will the Fed change its guidance on rates tonight? Coming into this morning, the market has grown more confident that they will not, generating a mild risk on rally and weakness in the dollar. Expect further mild rand gains if the Fed does keep to its wording that it intends to keep rates on hold for a ‘considerable time’ after the end of tapering in October," said Rand Merchant Bank in an early morning note.

"Admittedly, this probable scenario is mostly priced in but the decision is such a big deal that there should still be some relief if it plays out as expected. In the unlikely event that they get rid of the two little words, then expect a sharp move weaker in the rand, notably against what would be a rampant dollar. A (more than 20c) jump is quite possible," said the bank.

Intraday Outlooks For EUR/USD, GBP/USD, USD/CAD, AUD/NZD - SEB


The following are the intraday outlooks for EUR/USD, GBP/USD, USAD/CAD and AUD/NZD as provided by the technical strategy team at SEB Group.

EUR/USD: Sellers just above resistance. The market remains grounded as the brief attempt over 1.2990 was responded to (at the intraday stretch). Time spent outside 1.2908-1.2995 is needed to show next directional attempt. Current intraday stretches are located at 1.2905 & 1.3000.

GBP/USD: Buyers at mid-body support. Yesterday's intraday dip ran into mid-body bids. The fresh near-term high closed the gap which remained open since the weekend before last and it sends near-term bullish vibes. But the next set of resistance refs at 1.6365/1.6395 is thought to temper any pre-referendum rally. Back below 1.6160 would be renewed short-term bearish. Current intraday stretches are located at 1.6200 & 1.6315.

USD/CAD: Sharply down from the prior stretch. Notable selling kicked in yesterday and it accelerated after strong Canadian manufacturing numbers and a CB speech not complaining over a strong currency. Supports at 1.0955 & 1.0934 are under pressure and if broken, extension towards 1.0821/10 must be penciled in. First-hand resistance is located at yesterday's mid-body point at 1.1015. Current intraday stretches are located at 1.0955 & 1.1030.

AUD/NZD: Bouncing from the equality point. We came within seven pips from the 1.1018 key support before the anticipated upward reaction begun. 1.1018 is still, as explained yesterday, a major hurdle re-establishing the longer term bear trend (and if the decline in fact is a downside correction and not a resumption of the bear trend, well then the reaction should end at...1.1018). Our view is that the current bounce has potential for 1.1180 (above 1.1225 we will be wrong and new highs underway).

Global Forex Market Report - 16 September 2014
Breaking News: SARB keeps interest rates unchanged

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