by Nicholas Cork
AUD stayed within recent ranges as the Brexit vote played out early this morning, handing May another blow as the vote was lost by a crushing 432-202 votes. May’s options are now either a no-deal exit, delayed Brexit, resignation, general election or a second referendum. Labour leader Corbyn has tabled a no confidence in May’s Government, and Boris Johnson feels she now has a “massive mandate” to go back to Brussels and renegotiate. The GBP fell initially but was quickly back to the pre vote result level.
ECB head Mario Draghi spoke to the European Parliament on Tuesday after a report showed German economic growth slowed to its weakest pace in five years. Draghi commented the Euro zone’s economy faces a longer slowdown, is not heading for a recession but still needs support from the European Central Banks. The slowdown in growth has been driven by weaker activity in China Markets amid trade tensions between the US and China. Markets have pushed out expectations for the ECBs first interest rate hike in 8 years to 2020.
In China, authorities are pledging to keep the yuan rate stable despite further cuts in banks’ reserve requirement ratios (RRR). Stimulus has previously been delivered in a “flood-like” manner in past downturns which left large debt accumulation, however analysts believe more forceful easing including interest rate cuts is possible if economic conditions threaten to deteriorate more sharply. So I would expect the pledge to be tested if cuts to interest rates are actually delivered.
AUD still remains 0.7150/0.7250 until further notice ….
Chinese 3 month deposit rates (orange) vs US 90 day (purple) (Reuters)
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