Fed Serving Chicken and Waffles for Breakfast.
Not surprisingly, the Fed served up another plate of mixed messages very much reflective of the confusing signals dished out earlier in the week by various Fed Speakers. Traders were hoping for some tclarity in the wake of Tuesday’s “hawkish “comments from Fed Vice-Chair William Dudley, but none was on offer. Not to mention we now have traditional Hawks in the Doves Nest (Fed Bullard) and Doves in the Hawks Nest (Fed Dudley), how the landscape shifts.
If the FOMC’s objective was to impart more confusion to an already uncertain narrative, it has succeeded.However, if we consider that the minutes were the Central Banks assessment as of late July pre-July Payrolls data, apparently the Feds annual symposium at Jackson Hole Wyoming will provide a better platform to deliver a more defined message about policy. Therefore, the focus will shift to Aug 26.
All things being equal the longer traders have to ruminate about Fed Policy, the less US dollar friendly they become. However, theses minutes should not be confused as an overtly dovish signal from the FED as with the prospects of a rate hike still on the table; the US dollar is not down and out, but likely to flounder.
If indeed we are back to data dependency, it is more likely than not the Feds will find themselves with the conundrum of improving employment sector yet moderate inflation and weak consumer spending. Probably leaving us all in the same boat heading into the US election risk.
Fed Minutes For Your Interpretation
Australian Dollar Pre-Employment ( Due 11:30 AM Sydney 9:30 AM SGT )
As the markets approached the FOMC minutes, traders were shading towards “risk off” likely weighed down by Fed Dudley‘s hawkish lean from Tuesday. Given the proximity of his comments to the FOMC minutes, traders were looking over their shoulder.
The Australian dollars sensitivity to both risk and the prospects of rising US interest rates was evident as the currency fell some 80 points over the past 24 hours.
The markets spontaneous reaction to the FOMC minutes has been bashful ‘risk on’ and the Aussie dollar has recovered from the overnight lows of .7610 sitting in limbo below the key .7575 level awaiting today’s Australian Employment Data. Currently, the rates market is only pricing 2bps of easing for next RBA rate decision and given the unpredictability and volatility in the Australian Jobs data: however Super employment DATA now paves the path higher for the Australian Dollar, in particular with the US dollar on the on the offer across the G-10 space. The jump in the headline coupled with the decline in the unemployment rate paints a very rosy landscape, eliminating one element in the RBA rate cut debate.With the USD trading on its heels, the path of least resistance is higher for the Aussie
Oil market continued gushing overnight as WTI recovered after the Department of Energy (DOE) inventory data indicated a surprise draw. Oil prices had been on the slide as optimism faded for a freeze production agreement among OPEC members after Iran communicated little interest in the arrangement. Currently, we do not see much of an impact on the Australian Dollar.Given so much uncertainty in the “OIL Patch” at the moment traders are singularly focused on Fed Policy. But what needs closer monitoring are the industry sourced reports that Saudi Arabia could boost crude oil output in August to record levels, possibly buffering the positive take on the DOE inventory print.
West Texas Oil Chart