Fed’s decision on rates disappoints economists

After a week of build-up, debate and second-guessing, the US Federal Reserve chose to keep interest rates on hold.

In other news, the Bank of Japan minutes revealed some worry concerning the slowdown in emerging market economies, which could send ripples back to Japan as export companies are affected; hurting their capital expenditure and employment prospects.

A decision by the US Federal Reserve Bank (Fed) to keep its benchmark interest rate unchanged on Thursday gave African policymakers some breathing room as it ended speculation their local currencies would depreciate further against the dollar. “This should include upward revisions to GDP projections but a lower profile for interest rates“, Callow said in a note to clients on Thursday.

The New Zealand dollar rose, and is heading for a 1 percent weekly gain, as increases in dairy prices at the third straight GlobalDairyTrade auction and a more dovish US Federal Reserve helped lift the currency from its recent lows.

Futures show a 32 percent chance the Fed will raise rates Thursday.

The dollar is mostly holding its overnight losses, following the Fed’s decision. The currency touched a high and low of 65.67 and 66.22 respectively. The Australian dollar increased to $0.7270 from $0.7190.

“With the overwhelming majority in the FOMC still expecting to hike this year, and the domestic economy maintaining its momentum, we stick to our call of a December rate hike“, strategists at Rabobank said.

Mr Kelleher said the Australian dollar’s gain was due “to the market’s acceptance that (Malcolm) Turnbull is probably a better PM” than his predecessor, Tony Abbott, who he ousted this week. The Euro may emerge as a beneficiary of risk aversion once again, although strength against the greenback seems less likely if Fed rate hike bets are the source of markets’ souring mood.

Financial markets have for two years been closely wanting the Fed for clues as to its next move as the United States tries to shake off a post-Global Financial Crisis hangover.

The dollar index, which measures the greenback against six major peers, was down 0.83 percent at 94.626 in late trading, Xinhua reported.

“The monetary policy toolbox is pretty much empty just now and the one thing history has taught us, is that you can not beat economic fundamentals – interest rates will have to rise”.