May 24, 2017
Indicative Interbank spot sell rates only as of 9:00 AM PST.
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In the United States, Most Federal Reserve officials judged “it would soon be appropriate” to tighten monetary policy again and backed a plan that would gradually shrink their $4.5 trillion balance sheet. The statement points toward a hike as soon as the Fed’s meeting in mid-June, though FOMC voters added the caveat that “it would be prudent” to wait for evidence that a recent slowdown in economic activity had been transitory. Officials opted at the May meeting to leave the target range for their benchmark lending rate unchanged at 0.75 percent to 1 percent. They have projected three rate increases in 2017, including the hike they made in March. Investors see a solid chance of a rate move in June, with pricing in federal funds futures indicating nearly an 80 percent chance of an increase. Policy makers have also said they would like to start shrinking their bloated balance sheet by year-end, a move that may lift longer-term borrowing costs and dampen growth.
Euro is trading at 1.1188 as of 10:40 am PST. ECB’s Benoit Coeure said he sees no need to change the central bank’s guidance on policy sequencing. There won’t be rate increases before the end of asset purchases. Meanwhile, German Finance Minister Wolfgang Schaeuble said the euro’s exchange rate is a little bit too low for Germany, but not for other euro-area countries
Canadian dollar is trading at 1.3450 as of 10:41 am PST. The Bank of Canada kept its benchmark interest rate unchanged at 0.5 per cent in a rate decision Wednesday in Ottawa. Policy makers led by Governor Stephen Poloz gave a nod to improving economic data and added new language stating “the current degree of monetary stimulus is appropriate at present.” The Bank of Canada reiterated its assessment that subdued inflation and wage growth is consistent with “ongoing excess capacity in the economy.” At the same time, it said the economy’s adjustment to the oil price decline is “largely complete” and that “recent economic data have been encouraging” — with a “robust” labor market driving consumer spending and housing.
Australian dollar is trading at 0.7466 as or 10:52 am PST. The Australian dollar fell against the US dollar after Moody’s Investors Service cut its rating on China’s debt for the first time in almost three decades as China is Australia’s biggest trading partner.
Onshore Chinese yuan is trading at 6.8887 and offshore Chinese yuan is trading at 6.8781 as of 10:55 am PST. The yuan declined and default risk increased after Moody’s lowered the country’s rating to A1 from Aa3, citing the likelihood of a “material rise” in economy-wide debt and the burden that will place on the state’s finances. Underlying the critique from both: issues stemming from the Chinese leadership’s preoccupation with control. Few analysts expect painful reforms to be unleashed ahead of the Communist Party’s leadership reshuffle due later this year. While officials preach the need to rein in credit, ensuring the economy hits a 6.5 percent growth target remains the top priority. Moody’s highlighted that policy makers are fixated on economic growth targets, meaning already-high leverage will continue to build.
This market update is prepared by Cathay Bank for informational purposes only and does not constitute any form of legal, tax or investment advice, nor should it be considered an assurance or guarantee of future exchange rate movements or trends. This information is provided without regard to the specific objectives, financial situations or needs of any recipient. Cathay Bank does not make any representations or warranties about the accuracy, completeness or adequacy of this market update.