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Morning Brief 16.03.2017

16 March 2017

Yesterday, dollar posted a biggest daily loss in around two month’s after the Federal Reserve interest rate hike and its indication that it will continue to tighten the policy at cautious pace.

Federal Reserve official said that they would increase their benchmark federal funds rate by a quarter percentages, same as predicted by the market. But some traders were disappointed about the Fed maintaining its growth forecast for two more interest rate hike in 2017.

The message which Federal Reserve wants to give is that they want to move at a moderate pace.  The Fed’s more upbeat tone comes after upbeat data and continued strength in the labor market and firm inflation data.

Wednesday data showed that U.S consumer prices rose further in February, which indicated that the inflation is near the Fed’s target. Emerging markets are expected to get benefit from Fed’s cautious policy. Dollar slid 2.7% against Rand, 2.2% against the Mexican pes0 and 0.9% against the Yuan.

On the other hand higher U.S interest rate will put pressure on emerging market nation by encouraging investors to invest in the US and pulled their investment for emerging markets. Those flows will also boost the value of dollar making emerging markers dollar dominated debts more expensive to pay back.

Australian and New Zealand dollar traded higher in today’s Asian session despite of discouraging economic data. Both currencies advances after the Fed increased interest rate by 0.25% at the conclusion of its policy meeting.

New Zealand dollar shred its some of gains after the recent economic growth data which shows that New Zealand economy grew 0.4% in the fourth quarter which is lower than as anticipated. Economics expects that slower growth than expected is a result of last year’s earth quake and slower dairy production due to weather, and expecting that the growth will bounce back.

Australian dollar also reversed some of its gain due to disappointing employment data. According to Australian Bureau of Statistics, Australia’s unemployment rate increased to 5.9% in February from 5.7% January versus the 5.7% expected.  The number of people employed in month of February fell by 6400 as compared to the increase of 10000.

Also part time labor force decrease by 33500 and number of full time workers rose by 27100 in February. Australia’s last year jobless rates remained constant and recently Reserve bank of Australia forecasted the same for 2017. Job market is still remains the concern with creation of part time jobs, since the Full time employment has fallen , still the job market indicators are upbeat with business conditions and confidence both are rising.