CURRENCY: The Fed cutting its growth forecasts should refocus markets on prospects for global growth.

Watching China HSBC "flash" PMI, PMIs from Europe and the new US flash PMI today. In this environment NZD is likely to have a steady demand but for the moment 0.80 looks like a strong cap.

RATES: Quiet trading in the kiwi overnight in London, but with more payside interest and pressure to flatten the curve. Local rates are expected to open broadly unchanged ahead of this morning's NZ Q1 GDP.

REVIEW

CURRENCY: Currency markets were quiet ahead of the FOMC and then broadly unchanged as they were left under whelmed.

GLOBAL MARKETS: Markets overnight continued with the risk on theme, supported by the prospect of more central bank action, which contrasted with a more sober assessment from the FOMC. The EuroStoxx 50 rose 0.4% and FTSE 100 0.6%, with the S&P 500 losing ground after the FOMC statement. Government bond yields moved higher on European moves, although US Treasury yields moved lower after the FOMC statement. Commodity prices fell 1.6% on the CRB index, with large falls for soft commodities and energy. Crude oil prices fell 2.7%, with gold down 1%.

KEY THEMES AND VIEWS

FED EXTENDS TWIST BUT NO QE3 YET. The US Federal Reserve maintained the Federal Funds rate at current levels and repeated their pledge to maintain the policy rate at exceptionally low levels at least through to late 2014. In the current environment it was almost a given that the Fed would extend 'Operation Twist', and they did, through to the end of 2012. Specifically, the Fed committed to purchasing US $267bn of US Treasuries with remaining maturities of 6 to 30 years (64% in the 6 to 10 years window) at its current pace, while redeeming an equal amount of Treasuries with remaining maturities of 3 years or less. While QE3 is a bridge too far at present the Fed left the door wide open, stating "the Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability". The published growth forecasts were trimmed for 2012 (1.9% to 2.4% vs. 2.4% to 2.9% in April), 2013 (2.2% to 2.8% vs. 2.7% to 3.1%) and 2014 (2.3% to 3.5% vs. 3.1% to 3.6%). Forecasts of the unemployment rate were also higher, with the jobless rate at 7 to 7.7% by 2014 (6.7 to 7.4%). At the press conference Bernanke reiterated that monetary policy is not a "panacea", but that the Fed would do more if European worsened, with the Fed closely watching the BoE and UK Treasury's latest policy to extend lending to banks so they can lend to households and businesses directly.

OTHER EVENTS AND QUOTES

� BOE minutes show the MPC voted 5-4 to keep bond purchases at �325bn, with King, Posen, and Miles voting for a �50bn extension and Fisher a �25bn extension.

� Antonis Samaras was sworn in as the Greek PM, with the New Democracy party, Pasok, and Democratic Left coalition holding 179 of 300 seat parliament.

� The Norges Bank kept its policy rate on hold at 1.5%.

NZD/USD: Demand still constant but possibly capped?

FOMC changes aren't dramatic and are not enough to force NZD through technical resistance. For the medium term NZD will be in demand but short term weakness is possible as markets refocus on global growth concerns.

Expected range: 0.7880- 0.8000

NZD/AUD: Mid range waiting for a continuation?

Despite rates differentials there is technical resistance at 0.7850-0.7875. Should we get short term weakness NZD may underperform slightly?

Expected range: 0.7770 - 0.7840

NZD/EUR: Watching headlines, cautious of positioning?

Still circumspect on Europe due to Spanish funding issues and clash of Growth (France) & Austerity (Germany). Positioning is the caveat with Europes issues lacking immediacy to force an "accident"

Expected range: 0.6230 - 0.6300

NZD/JPY: Reverting to old ways?

JPY weakness immediately after the FOMC is expected to revert as the markets refocus on global growth concerns.

Expected range: 62.60 - 63.50

NZD/GBP: "Funds for lending" program interesting...

A 5/4 asset purchase vote sees the odds of an increase in the asset purchase program next month. Normally this would weaken GBP. However the market is interested as is FOMC Bernanke in the ""funds for lending program