Scope Market

The highlight of this week will be the Federal Reserve's monetary policy decision. The market is generally expected to maintain the bond purchase scale of $120 billion, but the Federal Reserve may be cautious because the recovery of the COVID-19 epidemic is an obvious concern. Jerome Powell, the chairman of the Federal Reserve, has made it clear that he hopes to focus on employment to make further progress.

At the Jackson Hole seminar, Powell stated that "we still have a lot of work to do to get the maximum employment", and due to the clearly disappointing employment figures in August (235000 vs. the usual 733000), he will remember to postpone the setting until there is better relief. We expect the announcement to be released in November, but for now, we can only expect cautious optimism and clearer support for this year's interest rate cut. However, it should be emphasized that this decision is completely independent of the decision to raise interest rates and cannot be automatically raised.

What can we expect from the Federal Reserve's outlook?

As the COVID-19 case seems to have reached its peak, the labor market is more constrained by labor shortage than weak demand. We expect the announcement of quantitative easing expansion to be released in November. At present, we can only expect the cautious optimism in the statement and clearer support for Jerome Powell's budget reduction at this year's press conference. We also want to emphasize that this decision is completely different from the decision to raise interest rates - there is no automatic path to higher interest rates.

The new forecast will show that as inflation corrects upwards, growth will slightly decrease. The big news may be the Fed's single point forecast for interest rate hikes. Currently, 7 out of 18 officials will use 2022 as the starting point for salary increases, and one or two officials may advance their predictions to 2022. We suspect that the current median will remain at 2023, but this will be a close decision.

The interest rate market will focus on three things. Firstly, as long as there are any signs that it is about to gradually decrease. Secondly, any rearrangement of points. Thirdly, any improvements in repurchase transactions. The first one is about the backend. Although it is not expected to announce an exit, any nod could push up long-term interest rates. Secondly, the front-end has greater influence. At present, the 2-year return rate in the 20 basis point region contains the least risk of interest rate hikes and will continue until the third quarter of 2023. If you push it forward by one year, the 2-year discount looks incorrect. The upward pressure on the two-year return rate should continue. This is the most likely outcome of this meeting and will have a significant impact.

Technology Outlook for NZD/USD

The US dollar has returned to its upward trajectory, starting to rise a week before the Federal Reserve's decision, and traders are paying attention to signs of contraction.

Last week, the US dollar also appreciated against the New Zealand dollar. NZD/USD fell after testing the lowered wedge-shaped ceiling, which opened the door to the floor. Although the outlook remains bearish within the boundaries formed by the chart, this pattern is typical.

Before the Federal Reserve makes a decision, the currency pair will focus on the downward direction of the support level (blue), and if the price is above the wedge-shaped ceiling, the opposite situation may occur.