By Perry Mitchell
The Aussie was the best performing G10 currency overnight, continuing its rebound from the sub 0.67 print early in Yesterday’s Asian trading session. Fuelling the recent lift in the Aussie was the widely expected RBA rate decision to leave the cash rate unchanged at 1.0% from yesterday’s meeting and the poor US ISM manufacturing PMI which was released overnight.
While the RBA was expected to hold yesterday, it was the statement that the market went to and the all-important final paragraph that was slightly changed from the previous August decision. Reading ‘The board will continue to monitor developments, including in the labour market, and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time”.
Along with that, the data released overnight painted a picture of a weakening US economy. The ISM manufacturing index came in at 49.1 for August versus 51.2 in July which was the first sub-50 reading since August 2016 and is the weakest figure since January 2016. This sub 50 print will provide further fuel to the market and Trump’s desire for the Fed to cut rates – it goes to show that with new tariffs coming into effect and the global backdrop continuing to weaken, the threat of a recession is rising.
Locally today sees the release of Australian GDP at 11:30 am AEST – The market expecting 0.5% for Q2, bringing annual growth to 1.4%. If the economy has grown at a 1.4% annual pace, it will confirm that it is the weakest growth in almost two decades. The GDP release today will determine whether this Aussie strength can continue.
In Brexit news, the conservative government lost its majority in Parliament yesterday and a motion to seize parliamentary time passed in an attempt to block a no-deal. Boris Johnson has proposed a call for a general election, which is likely to pass support from Labour. With an election now set to be fought ahead of the 31st October deadline and Boris Johnsons conservative party polling well, the likelihood of a no-deal has risen.
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