NEWS / Foreign Exchange

Stocks and Dollar Paused as FED Meeting Looms

Asian stocks edged lower on Tuesday and the dollar hovered above a record low against a basket of major currencies as investors held their fire ahead of a U.S. Federal Reserve policy-setting meeting that is expected to cut interest rates.

Crude oil prices also eased following a fourday rally to a record high of USD 93.80 a barrel and gold retreated from a 28-year peak of USD 794.40 an ounce as its five-day run sputtered to a halt.

Aussie Dollar Drops Back as USD Gains

The Australian dollar fell back to 92 U.S. cents as the U.S. dollar edged up, with some traders citing an article in the Wall Street Journal by Fed watcher Greg Ip that a widely expected U.S. interest rate cut this week might be a close call.

A pause in the rally in regional stock markets ahead of the Fed's rate-setting meeting saw demand for risky carry trades take a breather. The Aussie fell to a low of 105.19 yen, down from a near two-week high of 105.92 yen.

AUDUSD traded between 91.71/92.38

Why Rate Cut Isn't a Sure Thing

The market is convinced the Federal Reserve will cut interest rates tomorrow, but for the Fed itself, it is a closer call.

The behaviour of financial markets implies near certainty by investors of a quarter-point cut in the Fed's key short-term interest rate. But for policy makers, the decision is between the quarter-point reduction and no cut at all. A half-point cut is unlikely to get serious consideration from Fed officials, though some in the market expect it.

Both courses of action have risks. Perhaps the biggest is that the market's certainty that rates will be cut creates a burden.

EURUSD traded between 143.88/144.28