The Australian and New Zealand Dollars are trading mixed against the U.S. Dollar shortly before the U.S. opening on Thursday. Both currencies have been supported this week by the easing of US-China trade tensions. Yesterday, they both rose in response to upbeat comments from Chinese President Xi Jinping and President Trump’s subsequent approval of his comments.
Both Forex pair succumbed to pressure from the hawkish Fed minutes on Wednesday. Federal Open Market Committee officials saw an economy growing at a strong pace and inflation moving up as well, justifying continued interest rate hikes.
Minutes from the meeting on March 20-21, showed central bankers largely hopeful about the direction in which the economy was headed, though with a few misgivings.
The minutes also noted that “all participants” expected both the economy to strengthen and inflation to rise “in coming months.” The general sentiment likely fuels belief that the Fed will continue on its path of rate hikes.
“Participants generally saw the news on spending and the labor market over the past few quarters as being consistent with continued above-trend growth and a further strengthening in labor markets,” the minutes said.
“With regard to the medium-term outlook for monetary policy, all participants saw some further firming of the stance of monetary policy as likely to be warranted,” the summary said. “Almost all participants agreed that it remained appropriate to follow a gradual approach to raising the target range for the federal funds rate.”
Aussie and Kiwi investors are expected to continue to react to appetite for risk, but now have to be more concerned about another rate hike by the Fed.
Shortly after the release of the Fed minutes, investors started increasing bets for a rate hike in June and September. With the Reserve Bank of Australia and Reserve Bank of New Zealand expected to hold rates unchanged over the near-term, the interest rate differential is expected to continue to favor the U.S. Dollar.
Traders also remain cautious over possible Western military action against Syria. They will have to decide if appetite for risk or interest rates will have a greater impact on the currencies.
This article was originally posted on FX Empire
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