Investors now see less chance of a US rate hike next week after Federal Reserve Governor Lael Brainard on Monday warned against the Fed removing support for the economy too quickly.
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THE QUOTE: David Kelly, chief global strategist for JPMorgan Funds, said he thinks Federal Reserve policymakers seem “noncommittal” and aren’t sure if they should raise interest rates next week or not. Analysts had expected the index to rise by 2.0 points to 2.5 in September.
The dollar index .DXY , which measures the greenback against a basket of six major currencies, rose 0.2 percent.
South Korea’s Kospi .KS11 rose 0.5 percent and Australian stocks .AXJO advanced 0.1 percent. Futures foreshadowed gains in China, Hong Kong and Taiwan after the S&P 500 Index staged its steepest reversal since January.
The comments came after Boston Fed President Eric Rosengren said on Friday that low interest rates are increasing the chance of overheating the US economy.
Despite this, Australia’s currency has not fallen as much as expected in response to cuts in interest rates that have taken the cash rate to a record low 1.5%, Reserve Bank of Australia assistant governor Christopher Kent said Tuesday.
“We can stick with our main scenario that the Fed won’t raise rates in September”.
“The institution is created to ensure independence from the executive branch”, Brainard said.
That was seen as a sign the Fed will refrain from raising rates at a policy-setting meeting next week.
Fears of a September rate hike had sent the three major USA stock indexes tumbling on Friday in their worst decline since Britain’s June 23 “Brexit” vote to leave the European Union.
The yen strengthened 0.1 per cent to 101.71 per United States dollar, after gaining 0.8 per cent in the last session as Ms Brainard said the case for the Fed to raise rates was “less compelling”. The euro was flat at $1.1234 while the dollar index .DXY stood little changed at 95.155 after losing about 0.2 percent the previous day. “But then the dovish comments from Fed’s Brainard have been calming down markets again, and we see bonds up a bit”. That’s leading investors to wonder whether global policy makers will, after all, keep open the supply of bond-boosting cheap money – days after the European Central Bank sent securities tumbling by failing to expand quantitative easing.
Elsewhere, USD/CAD gained 0.45% to trade at 1.3101, re-approaching Monday’s more than one-week high of 1.3125.
Government data on Tuesday showed New Zealand’s food prices rose at their fastest monthly pace in more than five years, seasonally adjusted, as fruit and vegetables and grocery items jumped in August.
USA crude rose 41 cents to $46.29 a barrel in NY.
Despite her suggestion that it may be too soon for the Fed to resume raising rates, Brainard agreed in her speech that by most measures, the USA job market is steadily improving.
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As investors sought safe-play picks, retail giant Wal-Mart rose $1.64, or 2.3 percent, to $71.94 and Procter & Gamble gained $2.01, or 2.3 percent, to $88.25.
