Maybe September
Those hoping for clear QE hints from Fed Chairman Bernanke ‘s testimony in front of the Senate Banking Committee were disappointed. To be sure, Bernanke reiterated that the Fed is “prepared to take further action as appropriate” in the context of such familiar risks as the European crisis and the US “fiscal cliff”. However, he certainly did not provide anything to suggest further easing is on tap as early as August 1. EURUSD swiftly fell below the 1.22 level amid a broader relief bounce in the US dollar, though the move was subsequently reversed as equities regained their composure – partially driven by the sense that Bernanke has still not categorically ruled anything out. Today’s US data – June core CPI up 0.2% m/m; June industrial production up 0.4% m/m; July NAHB Housing Market Index up to 35 – took a back seat to Bernanke’s comments, but provided some ammunition for the growth bulls. In any event, we believe the Fed will stay in wait-and-see mode for now amid the high degree of uncertainty in the global equation. The June decision to extend the Twist programme through year end will buy time for the Fed, which would likely view the September 12-13 meeting as a better window for any potential action than August 1. After all, The September meeting will include the Summary of Economic Projections and a press conference by Bernanke. Moreover, the upcoming Jackson Hole conference on August 31 will provide Bernanke with an opportunity to prepare the market for any decision to ease in September, by which time the Fed will have seen two additional months of employment data. Meanwhile, USDCAD softened in choppy trading in the wake of the Bank of Canada’s decision to stand pat and retain its hawkish bias despite a number of external risks.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank