Fed, RBNZ and BoJ leave monetary policy unchanged

The much anticipated FOMC statement for April saw no significant shifts in the Fed’s narrative for the interest rate lift off. US Dollar bears that were looking for a more dovish tone from the Fed were left disappointed while there was equally not much of fodder for the US Dollar bulls. The Fed merely made a passing remark to the recent economic weakness calling it transitory and pointing out the fact that slowdown had come during the winter months. As has been the case, the US economy saw a similar slowdown during Q1 of 2014 as well.

In regards to the rate lift off timing, there wasn’t much to think about and the Federal Reserve from here on would focus on data in regards to its interest rate hikes.

The US Dollar managed to stabilize its losses but failed to keep any of its gains, as the US Dollar Index continues to decline gradually. The Euro, British Pound along with the commodity risk currencies managed to post gains albeit weaker after the FOMC statement. However in early European trading session the Euro managed to trim its losses from yesterday’s FOMC reaction and managed to chug along higher.

The Reserve Bank of New Zealand left its policy unchanged while noting that weaker inflation could spark a rate cut. The RBNZ stuck to its narrative calling the Kiwi Dollar unjustified and unsustainably high.

The fact that the RBNZ’s monetary policy event came at a time when most of the markets were closed saw the Kiwi gap down across the board and looks poised for further losses, with the exception of the NZDUSD which continues to look strong despite the dovish views from the New Zealand Central Bank.

The Bank of Japan was next in line for its monetary policy statement and as expected, there was no major change. While the board acknowledged that inflation could be running near zero, it remained optimistic that inflation would pick up in the near term. The Bank of Japan refrained from further easing to its QQE program. The Japanese Yen initially strengthened but soon lost ground to its peers as most of the currencies started to gain against a weaker Yen.

With the major policy decisions for the month done with, the markets are likely to continue to close the month on the broad theme with the US Dollar likely to continue to post losses.

The markets also look towards a slow couple of days with Europe closed tomorrow on account of Labor Day holiday. The US ISM manufacturing data is due tomorrow, which marks the first economic release for the month of April and in this aspect, the markets will be clued into the economic data readings to ascertain if the weakness in the US economy was indeed transitory or whether a larger weakness in economic growth has engulfed the world’s largest economy.