The mixed views from Fed officials had warmed up traders to an early hike, which had sapped demand for a kiwi that’s been buoyed by New Zealand’s relatively high interest rates and upbeat economic outlook.
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The region’s indices had slumped Monday with investors spooked by the prospect of a U.S. interest rate hike as early as this month. The report also showed a notable decline in export prices during the month. “Now they’re in a quiet period so we don’t know what they’re thinking”. Additionally, on Friday, Fed Funds traders thought the chance of a September rate hike was 30%. Investors still saw just higher than 50/50 odds for a December hike, Reuters reported.
The IEA, which represents 29 oil-producing countries, is predicting slower growth in demand for oil because of a more pronounced economic slowdown during the third quarter of the year, among other factors.
“Rising bond yields have the potential to put risk assets under significant selling pressure”, said Hans Redeker, head of currency strategy at Morgan Stanley.
With the presidential election approaching, the committee has only three remaining dates to lift interest rates – chair Janet Yellen has expressed a desire to increase rates at least once in 2016. When looking at last Friday’s price action, all major USA indices dropped by more than 2%., Wwhile gold and US 2-years treasury bonds, which are supposed to be more sensitive asset classes to changes in monetary policy, just fell slightly.
But people are perhaps more interested in listening to what Fed Governor Lael Brainard has to say, as she is such an influential voice.
“Today’s new normal counsels prudence in the removal of policy accommodation”, she said.
Many other policymakers think the US job market is near full strength and Fed Chair Janet Yellen argued in July the case for rate increases has strengthened. Since the economy will be less prone to overheating, “the case to tighten policy pre-emptively is less compelling”, Brainard said. “She should be ashamed of herself”, Trump said on CNBC.
OIL: Benchmark U.S. crude fell $1.00 cents to $45.29 per barrel in NY. Dennis Lockhart, Atlanta Fed president, said in a separate speech that a “serious discussion” on raising rates is warranted at the central bank’s upcoming meeting.
Moreover, the USA bonds have been closely following developments in oil markets due to their impact on inflation expectations, which are well below the Federal Reserve’s target. Wheeler has been thwarted from reaching his 2 percent inflation target as the strength of the kiwi makes imports cheaper, and had to refrain from cutting interest rates too sharply for fear of inflaming an already hot property market.
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As a governor on the Fed’s board in Washington and a close ally of Chairwoman Janet Yellen, Brainard is seen as a key figure at the central bank.
