After a summer of economic malaise, there’s little doubt that the Federal Reserve has moved its much-anticipated next interest-rate hike to the back burner.
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It just doesn’t seem to be there quite yet.
The Fed meets this week, and will issue its statement a few hours before the RBNZ, although no change was expected. In the view of most economists, the Fed wants more time to assess the health of the US economy, the risks from overseas and the prospect that low inflation will soon reach the central bank’s 2 percent target rate. Longer term, consider refinancing an adjustable-rate mortgage into a fixed-rate one to avoid future increases.
Hedge funds have cut their bets on a bullion rally by the most in more than three months, with speculation mounting that Fed officials, in the statement scheduled for release this week, will still signal that higher USA interest rates are on the way. The committee is still divided over the decision as it gets much more hard for Chairperson, Janet Yellen to give a clear stand. Ms Yellen has to be cautious in her speech as the markets have become sensitive and reactive to FOMC meetings more than ever. The BOJ and Fed meet on September 20-21.
But higher rates would increase the opportunity cost of holding gold that yields nothing.
There is universal expectation the Reserve Bank (RBNZ) will hold the OCR at 2 percent after August’s 0.25 percentage point cut, with only a one-in-five chance of a reduction.
A recent raft of positive data underscore the case to keep rates unchanged for now.
“The market is resigned to the fact that the Fed won’t move in September”, said Matt Jones, head of US equity strategy at J.P. Morgan Private Bank in NY. With US calendar also quite save the NAHB data at 14:00 GMT this dynamic is likely to continue for the rest of the day. In general the global market remains volatile at the moment due to the uncertainties over market events and the mixed expectations.
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Gold is highly sensitive to rising United States interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the U.S. dollar, in which it is priced. Macro economic conditions have not been favourable and what was meant to boost growth has only managed to keep Japan from falling deeper into deflation. When the Fed slashed the rate by half of a percentage point from 5.25 percent to 4.75 percent in September 2007 for the first time in almost four years amid concerns over the mortgage meltdown hurting the economy, then BOK Governor Lee Seong-tae declined to lower the country’s rate considering possible inflation pressures and relatively sound domestic financial market. Jobs growth was slightly down last month, however the three-month average sits at 232,000 which will give the Fed added optimism.
