Authors Brett Gordon & Steve Oram
After a hectic week of Central Bank focus, data is light today and tonight with nothing of real interest to affect markets. Tensions between Iran and the US ramp higher after another US military drone was shot down which could impact markets even though Trump was playing the incident down.
The Aussie Dollar opens higher this morning due to further USD decline after the FED meeting and a broad rush towards commodities, the AUD/USD takes a breather this morning in its rally beneath its 21 day morning average with last nights highs reaching 0.6930 levels.
Like all commodity linked currencies that benefited from USD decline the AUD also took advantage of USD weakness despite bearish comments suggesting another rate cut from the RBA. Iron Ore prices surging on tight supply comments from Rio Tinto even as competitor Vale SA begins full operations again.
RBA Governor Lowe added further weight to the likelihood of imminent rate cuts suggesting that recent data releases “do not suggest we are making any inroads into the economy’s spare capacity” and “it is not unrealistic to expect a further reduction in the cash rate”.
Lowe said there was a lot of room for the economy to improve and a 0.25% cut was unlikely to do much to achieve that improvement. Markets are now pricing in a 78% of another rate cut in July, up from the 50% chance before Governor Lowe spoke yesterday, with several major banks bringing forward their chances of a rate cut to July from August.
Elsewhere the British Pound only improved slightly overnight despite a broadly weaker USD. The Bank of England kept interest rates steady, and gave a relatively downbeat assessment of the economy, highlighting Brexit concerns and global trade tensions as risks to future growth.
The New Zealand economy has grown by more than expected over the past 12 months,the fact that the economy is holding up well greatly reduces the chances of a RBNZ rate cut next week
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