Kiwi Dollar Gains Late in Asia

A number of participants concerned about a delay in policy firming could increase uncertainty in financial market and build up financial imbalances. The Fed has said it needs exactly that confidence before raising rates. This results in the steepening of the yield curve along with increase in sale of interest rate bearing products. The minutes revealed that the majority of the officials in the central bank are willing to raise rates and made it clear that the meeting next month would be considered for a liftoff.

Business finance News believes that the labor market has begun to generate faster income growth which would provide additional incentive for home sales, contributing more to the domestic economy. “That means they’re more confident in our economy now”.

Lockhart pointed to the risk of strong and rising inflation because of improvements in the job market in turn causing inflation rates to spiral out of control. Under normal economic conditions, increases in the federal funds rate reduce inflation and increase the appreciation of the USA dollar. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. The Fed has kept its benchmark for short-term rates near zero since late 2008. And if it does, don’t expect to see further rate hikes until this one has been allowed to “bed in” for a good long time. Citigroup among other banks is deemed to benefit as more money will be in circulation.

“As well as being bullish the dollar against a few of the major currencies such as the euro, our preferred structural bullish dollar trade is against selected emerging market currencies”.

The premium offered by USA two-year debt over its German counterpart also yawned out to 124 basis points, the fattest margin since 2006 and a fillip to the dollar. However, profit-taking saw it retreat slightly in Asia on Thursday. The year has already been a tough one for numerous emerging economies with the continued slowdown in China and tanking commodity prices in countries that depend on them the most for their overall economies. Although the odds of imminent European Central Bank easing continue to rise, the Euro has benefitted from the increasing softness of the US Dollar (USD) ahead of the latest Federal Open Market Committee (FOMC) meeting minutes. Ultra-low interest rates have led borrowers to take trillions of dollars in debt tied to the dollar.

After a year of intense speculation about the timing of a United States interest rate rise, the Fed has finally all but confirmed it will start this ball rolling in December.

“The minutes from the meeting… should keep alive the dollar’s broader trend higher”, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

The pick-up in risk sentiment combined with the dip in the dollar gave commodities a reprieve from recent selling, with oil and gold inching higher. This will have an immediate effect on economies that rely primarily on commodity production and an abundance of natural resources.

Although it is hard to decide the Federal Reserve’s viewpoint with the interest rate situation.