Market Brief

The Usd was stronger in the Asian session, despite a rally in equity markets. The EurUsd traded sharply lower from 1.3285 to 1.3042, while the UsdJpy traded between 90.60 and 89.67. The Nzd came under significant selling pressure with NzdUsd falling from 0.5375 to 0.5131, as the RBNZ cut rates more than expected. Asian equity markets closed higher, but European indexes are currently broadly weaker. Commodity prices continue to decline, with gold falling 1.0% and wti crude falling -1.1%. Despite tentative signs of stabilization in the financial system and global economy, we still expect risk aversion to be the dominating theme, which will support the Usd, Jpy and to a lesser extent Chf.

As was widely expected, the Fed held rates steady within a 0%-0.25% target range. In the accompanying statement, the Fed noted it would keep the benchmark rate exceptionally low for a protracted period, while noting the focus of the Committee's policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. In addition, the FOMC comment directly referencing the purchasing long-term Treasury securities helped cement the markets view that the Fed is the most proactive central bank in dealing with the crisis. And in US politics, President Obama's $825bln stimulus plan passed the US House of Representatives. However, the vote was strictly along partisan lines and pundits expect the fight in the Senate to be much tougher (Democrats still lack a filibuster-proof majority).

In New Zealand, the RBNZ cut rates by 150bp to 3.50% (a record low), which were 50bp more than what was widely expected. The accompanying statement and press conference were overly dovish. The main reason for the aggressive easing was the deteriorating global economic environment and the central bank also cited dwindling inflationary pressures. RBNZ Governor Bollard made it very clear that additional cuts would be coming and stated the RBNZ has plenty of room to move if needed