Aussie Dollar Down More than 1% Overnight

February 6, 2019

An overnight speech by Bank of Governor Lowe, not Donald Trump’s delayed State of the Union address, stole the currency market spotlight today. Forward guidance from the Reserve Bank of Australia had for some time pointed to an eventual interest rate increase, but Lowe said that in line with shifting economic data and changing global risks that the next central bank rate change is as likely to be a cut as an increase. The last change was a 25-basis point reduction to 1.5% made  in August 2016. In response to Lowe’s revelation, the Australian dollar has tumbled 1.3% relative to its U.S. counterpart. The greenback also advanced 0.7% vis-a-vis the New Zealand dollar. New Zealanders are celebrating Waitangi Day Holiday, which commemorates the 1840 Treaty of Waitangi, the nation’s founding document.

Lunar new year holidays continued in China, Hong Kong, Taiwan, South Korea and Singapore.

Against other major currencies the U.S. dollar is up by 0.3% versus the euro and loonie, 0.4% relative to the peso, and 0.1% against the Canadian dollar but down by 0.2% versus the yen and sterling.

The S&P 500 and German Dax show declines of 0.4% and 0.5%. The British Ftse is off 0.2%, and the Japanese Nikkei has ticked 0.1% higher. Aussie share prices gained 0.3%.

The message of President Trump’s delayed State of the Union address  — be reasonable, do it my way — changed little in U.S. political dynamics. Just nine days remain before the deadline for achieving a border security bill. Meanwhile, in Europe, British Prime Minister May’s efforts to persuade other EU countries to modify the Brexit plan negotiated earlier has been rebuffed.

There’s been little change in gold or oil prices overnight, but ten-year sovereign debt yields have slipped slightly in the U.S., Germany, U.K. and Japan.

Three central bank policy reviews today ended with no change in key interest rates:

  • The Bank of Thailand’s one-day 1.75% repo rate by a 4-2 vote was left unchanged at that level. Such had been raised 25 basis points in December. Like many countries, Thailand faces greater global risks, although the baht has performed more resiliently than other Asian currencies. Thailand’s election in March is another uncertainty. Two members of the policy committee voted to hike the rate again.
  • The Bank of Iceland’s 7-day term deposit rate remains at 4.5%. A 25-basis point hike last November was the first increase since November  of 2015. Official project above-target CPI inflation until the second half of next year. They also revised projected GDP growth this year down by a full percentage point to 1.8%.
  • The National Bank of Poland’s reference rate was kept at 1.5%, the level since a pain of 50-basis point cuts in the first quarter of 2015. “In the quarters to come, there will probably be a gradual slowdown in GDP growth. At the same time, according to current forecasts, the annual price growth will increase in the coming months, yet – due to lower oil prices than in 2018 Q3 and the freeze on electricity prices – the scale of this increase will be markedly smaller than anticipated in the November projection.”

A monetary policy review is also being conducted today in Brazil.

JP Morgan’s global composite purchasing managers index fell to a 26-month low in January.

Euroland’s construction purchasing managers index dropped to a 6-month low  in January of just 50.6, indicating minimal growth in that sector. The Italian, French and German construction PMI readings were at their lowest respective levels in 8  months, 5 months, and 3 months.

Industrial orders in Germany plunged 1.6% in the final  month of 2018, their biggest monthly decrease in a half year, and this doubled their on-year rate of decline to 7.0%.

Indonesian GDP recorded the first quarterly decrease in 4Q since the first quarter of 2018, but on-year growth remained insignificantly changed at 5.17%. Calendar 2018, also of 5.17%, saw the largest GDP growth since 2013. Indonesian consumer confidence fell from a 6-month high in December to a 2-month low in January.

The U.S. goods and services trade deficit in November shrunk to a 5-month low of $49.313 billion, but the eleven-month cumulative deficit of $552.3 billion was a hefty 10.4% greater than a year earlier.

Canada’s IVEY-PMI index weakened to a 4-month  low of 54.7 in January.

The SACCI measure of South African business confidence printed  in January at a 4-month low of 95.1 and was also below its year-earlier reading of 99.7.

Mexican consumer confidence last month was at its best level in nearly 18 years in spite of Trump’s relentless push for a border wall.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.




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