The US dollar recovered some of its recent losses after minutes from last month’s US Federal Reserve meeting gave no clear clues about whether an even more dovish shift in its policy framework is possible in the autumn. Speculation had been rife that the Fed will adopt an average inflation target and seek to push inflation above 2% to make up for the years it has run below its target and cap government bond yields as part of a broader policy review. The published minutes from the FOMC did not mention any specifics about any new stimulus measures and hinted that no change in interest rate policy is expected until the end of 2021.
Australian stocks dropped 0.91% due to concern that ties with China will worsen further after a report that Australian regulators will reject acquisitions by a Chinese company as tensions between the two countries rise. Shares in China also fell due to dwindling expectations for additional monetary easing after the People's Bank of China kept a benchmark lending rate unchanged although the move was widely expected. Both currencies lost ground against a strong USD. After hitting an 18-month high of $0.7275, the Australian dollar fell back below 72 cents and the Chinese yuan traded at 6.9137 per dollar.
Global equity markets rose yesterday with the S&P 500 and the Nasdaq hitting fresh all-time highs driven largely by Apple Inc’s now $2 trillion market valuation. Wall Street then retreated after the FED fell short of adopting more dovish monetary policy measures. Asian equities and US futures were also hurt by tensions with China and new clusters of coronavirus infections. The Dow Jones Industrial Average fell 0.31%, the S&P 500 lost 0.44% and the Nasdaq dropped 0.57%. Stocks in Europe were also on the back foot with Euro Stoxx 50 down 1.36%, German DAX 1.31%, and FTSE off by 1.27%.
The euro fell 0.7% overnight to trade back below $1.19, the pound was dumped back to under $1.31 and the yen returned to changing hands above 106 against the dollar as the greenback strengthened following FED’s minutes publication. The New Zealand dollar dropped 1.3% from its intraday high to sit at $0.6552. The USD also gained against the Canadian dollar buying more than 1.32CAD.