by Nicholas Cork
A strange day for the AUD yesterday after a better than expected headline unemployment rate saw a squeeze higher above 0.7150 as expected, before an announcement by NAB that they would join the other 3 banks in raising variable interest rates, (the others members of the group raised in Sep), saw a wave of selling into a complacent market as investors feel it’s another knife in the back to the falling local housing market. The AUD fell below 0.7100 quickly as bets increased that the RBA’s next move will be a cut to the official interest rates, with the futures market now reflecting that view as it currently implies a 56% probability of a lower cash rate by year end, and notably the three year futures are 0.5% lower in yield from November. The rapid change in the path of interest rate expectation is similar to the current US experience.
In other news, the euro came under some pressure after the ECB left rates unchanged and Draghi highlighted the ‘downside’ risks, fueling speculation that any further rate hikes are off the table … “The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties” …. The GBP has eased off 3 month highs on a lack of new news, and the YEN has consolidated as it awaits direction. Notably US Commerce Secretary commented that the US and China are ‘miles and miles’ from resolving trade issues.
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