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Aussie holds gains for now as USD weakens again

Published December 5, 2019

Author Steve Oram

The Aussie dollar pulled back a little from 3 week highs after the GDP data disappointed, increasing speculation on further Interest rate cuts. Though it has still held gains of roughly 1% for the week. We get a further read on our economy today with Retail Sales and Trade Balance numbers released at 11:30 am AEDT.

Australian GDP Lags in Q4

Australian gross domestic product (GDP) rose 0.4% in the fourth quarter, missing expectations of 0.5% and down from the previous quarters 0.6%.  Annual growth ticked up to 1.7%, from a revised 1.6%, however the rate of growth remains well below the 2.75% pace considered “trend”.  The expansion was largely driven by strong exports and Government spending.

Three rate cuts and a personal income tax reduction this year have failed to give the economy a major boost.  Markets are now pricing in a 50/50 chance of a rate cut in February and there’s an increased chance of a move to 0.25%

Trump See-Saws on Trade Talks

President Donald Trump commented that trade talks with China are going “very well”, following yesterday’s threat that the trade deal may have to wait until after the 2020 US elections. Stocks rebounded overnight on renewed trade optimism as the two power-house countries come closer to agreeing how many trade tariffs would be rolled back in the “phase one” deal and provided a lift for commodity currencies.

US Private Payrolls Hit Near Decade Low

The USD dipped following a surprisingly weak ADP report, with private payrolls rising at its slowest pace since May.  At 67k new jobs, this sharply missed forecasts of 140K and job losses were reported in the factory sector. Focus now shifts to Friday nights non-farm payrolls with expectations for 180k new jobs added.

The US service sector activity slowed in November with the service index dropping 0.8 pts to 53.9 in November, business activity plunged 5.4 pts to 51.6.  Trade tensions and worker shortages remain key concerns and resulted in production hitting its lowest level in a decade.

The GBP is the best performing currency despite the latest election polls not showing a continued widening in favour of the Conservatives over the Labour party.

In Canada, the Bank of Canada held interest rates steady at 1.75% as they sited signs of global growth stabilizing.

Also locally, the Reserve Bank of New Zealand will release its final decision on the level of capital banks will require to hold at midday today with the RBNZ already commenting the commitment will be significantly higher. The Chinese Yuan dropped to its weakest level since October with the threat of fresh tariffs within weeks and an extension on the already long 17 month trade war with the US.