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Aussie consolidates strong gains

Published October 18, 2019

By Perry Mitchell

The world revolved around Brexit overnight with the Pound soaring from the latest developments indicating that an agreement was reached between the EU’s and UK’s representatives – effectively taking a no-deal outcome off the table. The initial headlines suggested that the Northern Irish Democratic Unionist Party supported the deal, but later the party formally stated that it would vote against it pushing the Pound lower. Still, the EU approved the withdrawal agreement and the political declaration.  The UK parliament is expected to vote on the deal this coming Saturday, although the latest commentary is that this may be delayed unless PM Johnson is confident that he can get the deal passed.

The Brexit deal boosted equity markets and also helped the AUDUSD pair – surging to one-month highs after a mixed employment report released yesterday, which brought about some hope around the jobs sector. This morning the Aussie is currently holding onto its daily gains of around 1% looking to close its best performance in a month.

This morning RBA Governor Lowe gave a speech at the IMF in Washington. Stating there is a high risk that the main effect of lower interest rates will be to push up prices of existing assets rather than stimulate investment in new assets. Governor Lowe also said that it would not make any assumptions that the RBA will need to turn to far lower or negative interest rates to meet inflation targets or restore trend growth, also affirming that ‘Negative interest rates are extraordinarily unlikely in Australia. There is still the possibility that rates are on the way down which should continue to cap Aussie rallies.

US data releases continued to highlight the weakening trend in US activity. Industrial production dropped 0.4%, more than the expected 0.2% decline, housing starts tumbled 9.4% in September, pulling back from the highest level in 12 years and initial jobless claims rose to 214K in line with expectations.

With no local data being released today, Q3 activity data from China at 1 pm AEDT will be the main focus.