The Australian and New Zealand Dollars sank as speculation about a cutback in Fed stimulus efforts drove liquidation across QE-linked risky assets.

Talking Points

Australian, New Zealand Dollars Drop as Fed Taper Speculation Heats Up
S&P 500 Futures Hint at More Risk Aversion in European and US Trade

The Australian and New Zealand Dollars underperformed among the majors in overnight trade, sliding as much as 0.6 and 1.3 percent respectively against their G10 counterparts. The sentiment-sensitive currencies sank as Asian stocks followed Wall Street lower amid swelling speculation about the Fed’s intent to slim down the size of its monthly stimulus effort. Benchmark 10-year US Treasury yields rose to the highest level in two years yesterday as investors anticipated that news-flow this week will bolster calls for the first cutback in asset purchases to be announced at September’s FOMC meeting. This drove liquidation across the spectrum of assets that thrived on the back of cheap, QE-linked funding over recent years.

The economic calendar is quiet in European and US hours, keeping Fed policy considerations in the spotlight going forward. The central bank is due to release minutes from July’s FOMC meeting on Wednesday. The annual Jackson Hole Symposium is due to begin on Thursday. The summit has long served as a platform for unveiling key changes in Fed policy and managing the end of QE seems likely to feature heavily this time around.

As it stands, market surveys of economists suggest a consensus view that envisions a September move to reduce asset purchases by $10 billion. A strongly dovish message countering that status quo is likely to establish support for stimulus-dependent assets and broadly weigh on the US Dollar. Alternatively, rhetoric on the hawkish side of the spectrum will probably produce the opposite effect.S&P 500 futures are pointing cautiously lower, hinting the path of least resistance favors further blood-letting in the risky asset space in the near term.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

1:30

AUD

RBA August Policy Meeting Minutes

–

3:00

NZD

RBNZ 2-Year Inflation Expectation (3Q)

2.36%

–

2.06%

4:30

JPY

All Industry Activity Index (MoM) (JUN)

-0.6%

-0.7%

1.2%

5:30

JPY

Nationwide Department Store Sales (YoY) (JUL)

-2.5%

–

7.2%

5:30

JPY

Tokyo Department Store Sales (YoY) (JUL)

-1.0%

–

9.4%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

IMPACT