FOMC Meeting in focus: favour long positioning in AUDJPY
The long-awaited September FOMC meeting finally arrives today. The meeting concludes with a 18.00 GMT (2pm local) release of statement and projections followed by a 18:30 GMT (2:30pm local) press conference. Our base case expectation remains that the Fed will take a pass on announcing tapering today but will leave the door open for reducing the pace of asset purchases later in the year. If they do elect to announce a tapering of purchases, we expect the pace to be a gentle $10bn with reduced emphasis on a mid-2014 end point noted at the June press conference. Our economists’ expectation is that the Fed will also elect to lower the unemployment threshold for its policy rate forward guidance from the current 6.5% to 6.0%, further cushioning the impact of a tapering announcement. We think these fairly dovish scenarios should be good news for the risk sensitive commodity bloc and EM currencies, while the USD should hold up reasonably well against the lower-yielding CHF and JPY, as long as the statement and/or press conference continue to support expectations for tapering by year-end. In the more extreme case where the Fed leaves its policy statement and message largely unchanged and offers no new insight on tapering, the USD would probably lose ground more broadly, including vs. the low-yielders. At the opposite end of the spectrum, a decision to taper aggressively (i.e., at a $20bn+ pace) would likely see the USD gain more broadly, including vs. high yield and EM currencies. We remain long USDCHF and AUDJPY heading into the meeting, consistent with our expectation for an announcement on the dovish end of the spectrum.
Read the full report: FX Daily
BNP Paribas