New Overnight Developments Abroad: Australian Central Bank Didn't Cut Rates

March 3, 2009

The dollar’s largest move was a 2.0% drop against the Ozzie dollar after the Reserve Bank of Australia unexpectedly kept its cash rate at 3.25% (see earlier RBA review).  Australian retail sales and current account data imply better growth last quarter than feared.

Several market moves today have been counter to recent trends.  Dollar rebounded 0.5% against the yen but fell 0.3% against the euro and Swissy.  The greenback also fell 1.0% against the kiwi and 0.1% versus sterling and the Canadian dollar.  Bond yields in year firmed slightly.  Oil recovered 1.8% to $40.87 following a sharp drop on Monday, and gold settled back another 1.5% to $925.70 per ounce.

Stocks, with a few exceptions, were mostly lower in Asia. Such fell 2.4% in New Zealand, 2.5% in Vietnam, 2.3% in Hong Kong, 1.4% in Pakistan, 2.1% in India and 1.0% in Australia. Investors spooked by $61.7 billion quarterly loss of AIG and $18.1 billion aid request of HSBC.  Europe’s Stoxx 600 hit its lowest level since 1996. The Ftse is 1.2% lower, and the Dax is down 0.4%.  The Nikkei slid another 0.7%.

The won broke a losing streak after intervention support from South Korean authorities.  Fear of intervention helped the Indian rupee.  But the Russian rouble edged closer to its target floor of 41 per basket and slid 0.2% against the dollar.

The Bank of Canada is expected to cut its 1.0% overnight target rate at 14:00 GMT today following worse-than-anticipated GDP data yesterday.

The Reserve Bank of Australia, which had been expected to cut its rate by 25-50 basis points, instead left policy unchanged.  While acknowledging a very weak global economy with poor prospects, officials observed that conditions and prospects are relatively not so bad in their own economy.  They noted extensive monetary and fiscal stimulus already in the pipeline, said their credit policy is already substantially accommodative, but did not rule out a rate cut next month.  Real Aussie exports (-0.8%) fell much less sharply in 4Q08 than real imports (-6.8%), implying a 1.5 percentage point contribution to GDP growth.  Led by food and clothing, retail sales firmed 0.2% in January on top of December’s 3.8% jump, which had been the best rise since 2000.  Australia’s current account deficit narrowed 31.6% between 3Q and 4Q08 and by 54% from the final quarter of 2007, reflecting stronger coal shipments.  Real public expenditures last quarter dipped 0.3%.  Public investment fell 1.5% despite the stimulus package.

Armenia’s central bank lifted its refinancing rate by 100 basis points to 7.75% and allowed its currency, the dram, to float lower.

Britain’s construction PMI slumped to a record low in February of 27.8 from 34.5 in January.

German new car registrations rose 21% on year in January.  German wholesale price inflation did not recede as much as anticipated in January, dropping 0.4% from December yet by 5.9% from January 2008, the biggest on-year decline since at least 1990.

Almunia of the EU warned that some euro area members might experience deflation.  Britain’s Chancellor of the Exchequer Darling said the Bank of England might do quantitative easing real soon.  The central bank’s MPC meets Wednesday-Thursday.

An officials from China’s central bank hinted that another interest rate cut might be undertaken to avoid deflation.

Norway’s PMI sank to a 5-year low of 36.4 in February from 41.4 in January.  Norwegian consumer sentiment worsened to -11.1 from -7.9 last quarter.

Swiss real GDP fell only 0.3% last quarter despite much greater weakness in key export markets like Germany.  GDP fell 0.6% on year. Exports and investment were down significantly, but consumption eked out a 0.1% uptick.  Government spending rose 0.7% in the quarter.

Bahrain reduced reserve requirements by 2 percentage points to 5%.

South African new motor vehicle sales plunged 36.3% in the year to February, most since the year to July 1984.

South Korean consumer prices rose 0.7% last month and by 4.1% on year, up from a 12-month rate of 3.7% in January. Further deceleration was expected.

Growth in Japan’s monetary base accelerated further to an on-year increase of 6.4% in February from 3.9% in January and 1.7% in 4Q08.

The U.S. will release weekly chain store sales and monthly pending home sales. More importantly, monthly domestic car sales arrive today, and Fed Chairman Bernanke is testifying in the Senate on the budget and economic outlook.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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