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Sentiment sours ahead of RBA statement

Published February 8, 2019

by Nicholas Cork

Not a great night for sentiment as the European Commission sharply cut forecasts for Euro Zone economic growth for 2019 and 2020, based on expectations that member countries within the zone will be held back by international trade tensions alongside domestic challenges. German industrial production data dampened sentiment further as output fell for a fourth consecutive month which led the DAX to a 2.5% fall. No doubt some panic rising through the political ranks in Germany as they discuss ways to shore up their industrial powerbase and protect it from foreign takeovers at any cost.

Yesterday the NZD followed the AUD down the potential rate cut shaft as their unemployment result came in at 4.3% vs market expectations of 4.1%, and significantly away from the Q3 2018 number of 3.9%.  The worse than expected number saw the NZD immediately sold and has now created uncertainty around next weeks’ Monetary Policy Statement from the RBNZ.  Speaking of which, the RBA today releases their Statement of Monetary Policy which in light of this weeks ‘guidance’, will be widely anticipated by market participants. The last statement from the RBA was in November as it is only released 4 times per year, so should be quite different content from the previous.

Unfortunately another dampener leading into the weekend is that US-CHINA trade progress seems to have reversed as Trump confirms that he will not meet with Xi before the March 1st new tariff deadline.  Trump’s advisor Larry Kudlow has said there’s a “pretty sizable distance to go” before the U.S. and China reach a sweeping trade agreement, however last week he had said “the talks on Wednesday and Thursday in general had what I call a good vibe,” so personally I am striking him off the list of straight talkers. Also just a day earlier, Treasury Secretary Steven Mnuchin said the talks have been “very productive,” so not easy to get a handle on where they are at as China is being professional by saying nothing at all.

The AUD has traded within 0.7080/0.7120 over the last 24 hours and will consolidate further ahead of the RBA statement due at 11.30am. The market is needing some solid forward guidance from Central Banks.

40 years of AUDUSD  (reuters)