IG Markets - morning thoughts and opening prices

IG Markets - morning thoughts and opening prices

In US trade, the FOMC surprised markets by first pledging to leave rates on hold until late 2014, and secondly committing to an explicit inflation target. With the FOMC sending out a strong signal that monetary policy is likely to remain accommodative for even longer than previously expected, risk assets are in a very good position. Last night's FOMC meeting seems to have everyone suggesting it’s a matter of when, not if the Fed will embark on renewed asset purchases. The price action in gold, equities and the USD suggests that this is the case. With most currency forecasters calling 2012 'the year of the USD', perhaps last night’s meeting will have them re-evaluating their calls.

The dollar fell across the board upon the announcement, reversing the gains from the previous sessions. Risk assets rallied, and the euro broke through 1.31. With many traders and analysts having written off the euro this year, this might be a turning point for the single currency. The dollar weakened against the euro to the lowest level in a month. Other currencies that are well supported by the announcement are the Aussie and Kiwi dollar. AUD/USD remains on an upward trajectory and even brushed off a weaker-than-expected Q4 CPI reading. The RBA is still widely expected to cut the cash rate by 25 basis points in February.

As anticipated, the RBNZ left its cash rate on hold, but NZD was swept higher as part of the dollar move. It remains prudent to keep the OCR on hold at 2.5%. The words 'for now' were dropped from the statement, suggesting the bank will be on hold for longer.

Gold charged through $1700 and rallied to its highest level since 12 December 2011. As a good store of wealth, gold is the preferred asset in the event of further quantitative easing through asset purchases.

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday’s close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

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