The CAD is the strongest and the NZD is the weakest as the NA session begins. The USD is mostly stronger ahead of the PPI data at 8:30 AM ET and the FOMC rate decision at 2 PM.

The New Zealand government, under its new leadership, implemented a significant change in the country’s monetary policy by altering the mandate of the Reserve Bank of New Zealand (RBNZ). With the passage of new legislation, the RBNZ’s focus has been shifted to concentrate solely on controlling inflation. This marks a departure from its previous dual mandate, which included both inflation and employment as key targets. The change to focus exclusively on inflation was a major policy position of the new government, emphasized during the election campaign.

In related economic news, Westpac, one of the major banks in New Zealand, has revised its forecast for the country’s Q4 Consumer Price Index (CPI) inflation. The bank now expects a lower inflation rate of 0.3%, a decrease from its earlier forecast of 0.6%. This adjustment is attributed to weaker economic data that has emerged recently.

Adding to the economic context, the New Zealand Food Price Index (FPI), which is a key indicator of inflation in the country, fell by -0.2% in November, following a -0.9% decline in October. The index has now seen decreases in four of the past five months. The news and the data sent the NZDUSD down to test its 200 day MA at 0.60876 (green line in the chart below). Earlier in the day, the price tested the 100 hour MA (blue line on the chart below) on the topside but found willing sellers keeping the bears more in control.

The Federal Reserve will conclude their two-day meeting and complete the calendar year which saw the Fed raise rates by 25 basis points at 4-seperate meetings. After moving to 5.0% to 5.25% target range for the Fed Funds rate in May, they kept the rate unchanged for one meeting before raising by another 25 basis points in July to the current 5.25% to 5.50% target.They have kept the rate steady for two consecutive meetings. Today is largely expected to be the third.

Traders will be focused on the statement about the possibility of future rate cuts in 2024. Powell has emphasized the need for caution as fears of reignited inflation still seems to be a worry. The market will be particular mindful of the so-called “dot plot,” which outlines officials’ rate expectations. This will provide insights into the Fed’s views on a potential 25-basis point reduction in 2024. While some Fed members consider current policies sufficiently restrictive to address inflation, others believe more time and evidence of easing price growth are needed before considering a rate cut.

In addition, the Fed will publish the expectations for inflation, GDP growth, and employment (the “Central Tendencies”). In September, the Fed median indications saw the 2021 end of year target Fed Funds rate at 5.1% (up from 4.6%), with unemployment at 4.1%, PCE inflation at 2.5%, Core PCE at 2.6% and GDP at 1.5%

Crude oil is little changed ahead of the EIA weekly inventory data to be released at 10:30 AM ET. The private data released late yesterday showed:

• Crude oil drawdown of -2.349M.
• Gasoline build of 5.8M

The expectations today were for a drawdown of crude of -0.650M and a build of 1.933M in gasoline stocks.

At 8:30 AM, the US CPI will be released with the expectations of 0.1% MoM with the headline final demand at 1.0%. The ex food and energy is expected to rise 0.2% MoM and by 2.2% YoY (down from 2.4%). The US CPI data was released yesterday and although CPI headline inflation moved to 3.1% from 3.2% prior month, it remains well above the 2% target for the Fed. The Core was at 4.0% but the 6 month average is lower at 2.9% indicative of a declining trend.

A snapshot of the markets to kickstart the North American session shows:

• Crude oil is trading up $0.28 or 0.42% at $68.87. At this time yesterday, the price was at $70.94
• Spot gold is trading up $1.95 or 0.10% at $1981.31. At this time yesterday, the price is at $1988.66
• Spot silver trading down -$0.03 or -0.16% at $22.69 . At this time yesterday, the price was at $22.95
• Bitcoin is trading at $41,190 . At this time yesterday, the price was trading at $41,745

In the US stock market, the major indices futures imply a higher opening after closing higher across-the-board yesterday. All three indices closed yesterday at the highest levels for 2023 (once again). Shares are up for four consecutive days:

• Dow Industrial Average futures are implying a gain of 31 points. Yesterday, the Dow Industrial Average rose 173.01 points or 0.48% at 36577.95
• S&P index futures are implying a gain of 3.0 points. Yesterday, the S&P index rose 21.26.2 or 0.46% at 4643.69
• NASDAQ index futures are implying 34.5 points . Yesterday, the Nasdaq Index rose 100.91 points or 0.70% at 14533.40

In the European equity markets, the major indices are trading higher:

• German DAX, 0.11%. Yesterday the index was unchanged
• France’s CAC, +0.22%. Yesterday the index fell -0.11%
• UK’s FTSE 100, +0.37%. Yesterday the index fell -0.03%
• Spain’s Ibex, +0.02%. Yesterday the index fell -0.78%
• Italy’s FTSE MIB, +0.11% (10 minute delay).

In the Asia Pacific market, major indices closed mixed

• Japan’s Nikkei index, +0.25%. On Tuesday, the index rose 0.16%
• China’s Shanghai Composite Index, -1.15% . On Tuesday, the index rose 0.41%
• Hong Kong’s Hang Seng index, -0.89%. On Tuesday, the index rose 1.07%
• Australia’s S&P/ASX index, 0.31%. On Tuesday, the index rose 0.50%

In the US debt market, yields are trading lower:

• US 2Y T-NOTE: 4.717%, -1.3 basis points. At this time yesterday, the yield was at 4.684%
• US 5Y T-NOTE: 4.205%, -2.1 basis points. At this time yesterday, the yield was at 4.203%
• US 10Y T-NOTE:4.182%, -2.5 basis points . At this time yesterday, the yield was at 4.189%
• US 30Y BOND: 4.282%, -2.1 basis points. At this time yesterday, the yield was at 4.276%
• 2 – 10-year spread is trading at -49.3 basis points. At this time yesterday, the spread was at -49.3 basis points
• 2 – 30 year spread is trading at -40.9 basis points. At this time yesterday, the spread was at -40.9 basis points

In the European debt market, benchmark 10-year yields are trading lower led by the UK 10 year yield.

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