Here is a just a quick summary of the latest from ANZ on the Federal Reserve

  • Recent US Federal Reserve guidance that the Fed funds rate is "a long way" from neutral and the FOMC may go beyond the neutral rate sparked financial market turbulence with bond yields rising and equities selling off.
  • We see the Fed close to neutrality and think the FOMC will pause when the fed funds rate gets to 2.75%.
  • There are upside risks to our forecasts, but we think the Fed will struggle to raise the fed funds target much beyond 3.0%.

The note is detailed, but that's the summary.

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From the note, implications for the AUD and NZD:

  • Despite our cautious fed funds view, we think risk sensitive currencies will continue to struggle versus the USD.
  • We anticipate further weakness in the AUD taking it below USD0.70 towards USD0.67. Outside of risk appetite and volatility, a strong US economy in coming quarters could continue to widen the interest rate differential in the US's favour, which, on our estimates, would imply a move down towards USD0.68.
    The NZD remains vulnerable to further downside versus USD, and we continue to advise selling rallies.
    As with the AUD, spreads, risk appetite and deteriorating liquidity help to underpin this view.