Optimism in the small business (NFIB index) showed the largest monthly increase since May 2018, increasing 2.3 points to 104.7 in November. Moreover, 7 out of 10 sub-indices grew, and the uncertainty index fell to 72p, which is the lowest indicator since May 2018, and it shows that the business is ready to expand investments.
The forecast only assumed a slight improvement, so the dollar received additional support before the FOMC meeting. In fact, the growth of the NFIB index shows that the business has finally begun to respond to improvements in tax legislation.
For the Fed, the growth of optimism in small business is another factor that justifies the pause in cutting rates after strong non-farms, since it reduces concerns about a slowdown in the US economy. In addition, characteristic signs of a better situation are observed both in the growth of the yield spread and in the increase in inflation expectations - the yields of 5-year Tips bonds rose to monthly highs, which reduces the probability of a weak consumer inflation report for November.
In turn, the markets expect that the FOMC at today's meeting will not make any changes to monetary policy, but will take a pause at least until March. More so, the markets do not expect serious changes in the accompanying statement, since the target for rates has already been changed at the meeting in October and the current situation does not force them to adjust.
Therefore, the most likely reaction of the markets to the results of the FOMC meeting and the J. Powell press conference is neutral. The dollar will only be able to react with a fall if the number of votes in favor of a further rate cut increases, which is unlikely in current realities. Accordingly, any sign of strength in both new forecasts and in the accompanying statement or Powell's speech will help strengthen the dollar at the end of the day.
NZD/USD
Kiwi updated its 3-month high, increasing to 0.6575. However, further growth is in doubt, because, firstly, the expectation factor for changes in bank capital ratios was won back, and secondly, Kiwi technically rose to the upper boundary of the short-term ascending channel, and the probability of a correctional decline increased.
According to RBNZ, a change in banking capital ratios will increase retail interest rates by about 20p, and GDP will decrease by 0.2% in the long run. At the same time, tighter financial conditions will create pressure on the economy and the risk of lowering the availability of loans will increase, which may ultimately lead to a further slowdown in consumer demand growth.
Supports are at 0.6506 and 0.6480 / 85. A decline to them can be used for purchases, as the trend remains growing. Australia, China and especially the United States gives little reason for optimism. Now, there is no threat to New Zealand's foreign trade balance, demand for kiwi will remain stable, and trade-weighted rates at long-term lows. All these factors together push the kiwi higher.
AUD/USD
The Australian economy looks quite stable after the publication of data for the 3rd quarter, if we depend only on those indicators that are usually taken as the main ones in the assessment. The forecast for GDP growth rates is neutral. It is expected to grow 2% this year and 3% next (RBA forecast), unemployment is stable at 5.5%, while inflation is slightly below the target range at 1.5%.
At the same time, it should be noted that the volume of investment in housing is falling, and the growth in household consumption is steadily declining, despite the extremely soft conditions.
AUD continues to slowly decline on a NAB business study showing that confidence in the business environment has stabilized below average. However, there has been no reaction, as well as on the speech of RBA head, Philip Lowe. Meanwhile, Lowe noted that the weakness in consumption growth came as a surprise to the RBA, since growth was expected due to the introduction of tax benefits. Lowe also expressed his conviction that over time, households will still increase spending because they will have additional income, but practice shows the opposite - despite all measures, consumption growth rates are slowing down rapidly.
If the situation develops, then new stimulating measures will be required and there is no doubt about that. Aussi remains in a downward trend. Today, a positive reaction to the FOMC meeting can give an impulse to growth, but the Australian currency will find resistance in the zone of 0.6530 / 35, after which the sale is likely to resume. Nevertheless, the decline to 0.6753 is the most likely scenario for the week.