US December Rate Hike Now 80% Certain

In a relatively quiet trading session the Dow Jones and S&P both opened higher but faded throughout the session to close virtually unchanged. The US dollar has been recovering some ground over the last couple of weeks with DXY now trading at 93.05 compared to a low of 91.35 on 8 September. This has caused the AUD/USD to fall below $0.79, now trading at $0.788. The Reserve Bank of Australia is probably breathing a sigh of relief that the rally in the AUD appears to have halted for now.    

Federal Reserve Chairwoman Janet Yellen spoke at the National Association for Business Economics meeting and guided that rate hikes will progress as expected assuming economic data remains on track. The Fed doesn’t seem too concerned with recent weakness in inflation as it is confident that this is just transitory. This may have contributed to a sell-off in gold last night. Gold price volatility appears to be on the rise with the metal whipsawing around this $1,300 level over the last few days. Last night it was sold off throughout the entire session, breaking below $1,300 again with the most recent trade price at $1,294.

The probability of a rate hike in the US in December is now over 80%. Only a major weakening in economic data or the stock market would derail the Fed’s plan to raise rates in December. If a rate hike does eventuate, it will bring US rates very close to Australian rates, something which hasn’t happened since the early 2000’s.

Tonight the US releases its durable goods orders data which are a leading indicator of production.    

Data Releases:

–    US Durable Goods Orders 10:30pm AEST

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This article was written by William O’Loughlin – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.