FX Update
Market Overview
This week’s economic update shows choppy trading in markets overnight, with US equity markets easing from previous record highs spurred by the news of the tax legislation passing through the US Senate. Initially this week, the USD and equity markets traded at elevated levels, as the tax-cut legislation news shifted focus away from the continuing Mueller investigation into the Trump administrations Russian connections.
The S&P 500 Index reversed gains of as much as 0.9 % and the Nasdaq index fell as investors reassessed a rally that’s propelled stocks to numerous records this year. An index of the biggest tech shares dropped to a five-week low as investors switched out of the sector, overwhelming an advance by companies poised to benefit from proposed cuts to corporate taxes.
The United States Dollar remained firm, with the Euro and UK Pound softer, the later being knocked by failure of a meeting on Monday between ECB Head Junker and UK PM May, to reach agreement on a Brexit divorce bill.
The Reserve Bank of Australia (RBA) announces its monetary policy decision at 2:30 p.m. local time today and is widely expected to have kept rates on hold (again)!
Australia, which has a packed week of key economic data, with Q3 current account balance and GDP also due later today both are expected to be more positive.
October retail sales earlier today showed a better than expected result, up 0.5% against an expected 0.3%. The Australian dollar (AUD) spiked 20 points on the news. This data is encouraging, especially coming before the Christmas period where there has been a recent upsurge in cost of living, which has seen a spike in electricity, gas and petrol prices, while soft wage growth over the same period had also coincided with the poor results in the retail sales in Q3. Australia then finishes the week with October home loans on Friday.
In a speech earlier this afternoon the RBNZ Governor commented that inspire of the current softness in inflation, the RBNZ expects both domestic and imported inflation to pick up over the coming years. With this in mind, they are concerned that trying to boost inflation now could cause unnecessary instability in other economic outputs down the line,it may also adversely affect household debt. Consequently, the RBNZ believes it’s appropriate to keep rates low for some time yet. Our pick is out late 2018 (but little chance of rate cuts). Basically it would appear that the RBNZ is aiming for a gentle rise in the rate of inflation, aiming to avoid an overshoot that could require higher interest rates, which would then potentially have a negative impact on growth and employment over the longer term.
Elsewhere in the region, China will update on trade, inflation and foreign-exchange reserves for November. Consensus forecasts point to a 5% year-on-year rise in Chinese exports in dollar terms after October’s 6.9% increase. Japan’s third-quarter GDP may be revised higher.
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