The Federal Reserve kept their interest rate target unchanged at their latest conference on Wednesday.
As the death toll rises by 2% in the United States to 1.06m, Chairman Jerome Powell states the Federal Reserve remains steadfast in assuring that they are using the ”full range of tools” accessible to them “forcefully, actively and aggressively” until they are confident that the United States is on the road to recovery. This is on the back of their announcement in March of unlimited purchases of asset-backed securities and treasuries to support liquidity in the markets. The FED’s balance sheet has increased from 4 Trillion to 7 Trillion since that announcement.
10-year treasuries dipped slightly on the news, edging up two basis points to .63 percent. Furthermore, the dollar index is down .36 percent. The dollar has slipped against risk on currencies such as the NZD and AUD as New Zealand and Australia transition out of lockdown.
Traders have recently been risk on with the NZD/USD pair, booking gains in the past 5 days. Alongside the risk on dynamic due to New Zealand slowly coming outside of lockdown, attention has been brought to New Zealand’s “Investor Visa.” Investment Banker Troy Bowker floated the idea of offering a visa to high net worth individuals who invested $50 million each in the country. Currently, New Zealand has two investor visas – 3m Invested for 4 years and 10m Invested for 3 years.
However, Anish Lal – an analyst at Blackbull Markets gives a technical read on the recent bull run on the NZD/USD pair. He stated that the “55c level was a decade low, and that buyers sought that to be a “buy the dip” opportunity to bring back levels which are on par with the dollar” and that “the initial weakness of the NZD was due to the RBNZ cutting rates before the Federal Reserve.” With a majority of central banks having cut rates to near 0, it has become a “level playing field” in terms of yield to play on.
The AUD has posted similar gains against the USD, also booking gains for the past 6 days as the demand for commodities such as copper and iron slowly pick up.
This risk on dynamic has also been reflected in the equity markets, with the SP500 and the NASDAQ up 2.6% and 3.6% respectively. However, with countries being at different stages of the coronavirus recovery, it is yet to be seen whether this risk on dynamic has some meat behind it, or whether it is just cautious optimism slowly seeping its way into the markets.