Fed And RBNZ On Hold, Dollar Soft On Risk Sentiments

Market sentiments are generally lifted by Fed's pledge to maintain rates low till late 2014 and positive earnings from US companies. So far, around 75% of the 200 companies in S&P 500 index that has reported results beat expectations. Nasdaq had the biggest rise this year yesterday on Apple overnight while DOW rose nearly 90 pts. Positive sentiments carried on to Asian session today even though buying in risks faded somewhat. Dollar remains generally soft, in particular against Canadian dollar, which took our recent range yesterday. Meanwhile, Sterling surprisingly survived yesterday's poor GDP data and break key near term resistance of 1.6165 against greenback. We'd possibly see more downside in dollar today.

As expected, the Fed maintained the policy rate unchanged at 0-0.25% and did not add further monetary easing measures. While the post-meeting statement contained only modest changes from the previous ones, the latest economic projections sent a confusing outlook. Fed Chairman Ben Bernanke reiterated that the central bank has 'prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target'. The language to leave interest rates at exceptionally low level at least until mid-2014 remained unchanged.

In the economic forecasts, Fed officials revised up GDP growth for 2012 to a midpoint of +2.45%, up from +2.65% projected in January, but lowered its estimates for 2013 and 2014 to 2.90% and 3.35% respectively. Unemployment rate was lowered for this year as well as for 2013 and 2014. The fact that the Fed did not change the full employment estimate, retaining it at 5.2% to 6.0%, is inconsistent with the changed in GDP and inflation forecasts. Moreover, policymakers continued to forecast a upper limit of +2% for inflation.

The RBNZ also left the OCR unchanged at 2.5%. Moreover, Governor Alan Bollard signaled that the pause might be prolonged due to strength in the New Zealand dollar. Concerning the global economic outlook, Bollard stated that 'near-term indicators have moderated and financial market sentiment is still fragile'. Domestic economy has, however, shown signs of recovery. As housing market activity 'continues to increase and a recovery in building activity appears to be under way as forecast'. He believed that the recovery will strengthen as 'repairs and reconstruction in Canterbury pick up later in the year'. Price levels would continue to 'stay near the middle of the bank's target range'.

More in FOMC And RBNZ Meeting Review

On the data front, Australia conference board leading index was flat in February. Japan all industry index dropped -0.1% mom in February. Eurozone confidence indicators will be released today with UK CBI reported sales and German CPI featured. From US, a main focus is initial jobless. Markets are expecting claims to drop back to 375k but beware of negative surprises. Pending home sales is expected to rise 1.3% mom in March.