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Sentiment towards Fiscal and Monetary Policy to Remain in the Spotlight

By:
Bob Mason
Updated: Mar 5, 2020, 06:21 UTC

It's a quiet day on the economic calendar, which leaves central banks and governments and the battle against the coronavirus in focus.

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Earlier in the Day:

It was a quieter day on the Asian economic calendar this morning. The Aussie Dollar was in action in the earlier part of the day.

Outside of the numbers, it was “risk-on” in the equity markets, which responded to the fiscal and monetary policy support from the U.S.

Overnight, the House of Representatives approved an $8bn package to combat the coronavirus, which followed the FED’s 50 basis point emergency rate cut on Tuesday.

It wasn’t so bullish across the Asian currencies, however, with uncertainty over what lies ahead continuing to pressure.

For the Aussie Dollar

The trade surplus narrowed from A$5.376bn to A$5.210bn in January. Economists had forecasted a narrowing to A$4.800bn.

According to the ABS,

  • Goods and service credits fell A$1,166m (-3%) to A$40,122m.
    • The exports of non-monetary gold fell A$735m (-34%), with non-rural goods exports falling by A$714m (-3%).
    • While there was a decline in the net exports of goods under merchanting of A$8m, rural goods exports rose by A$236m (+6%).
    • Service credits rose by A$54m (+1%).
  • Goods and services debits fell A$1,001m (-3%) to A$34,911m.
    • The imports of capital goods fell A$640m (-10%) and import of intermediate and other merchandise goods by A$466m (-4%).
    • While the import of consumption goods fell A$19m, the import of non-monetary gold rose A$225m (+60%).
    • Service debits fell A$101m (-1%).

The Aussie Dollar moved from $0.66174 to $0.66207 upon release of the figures. At the time of writing, the Aussie Dollar was down by 0.20% to $0.6614.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.18% to ¥107.34 against the U.S Dollar, while the Kiwi Dollar was down by 0.17% to $0.62878.

The Day Ahead:

For the EUR

It’s a quiet day ahead on the economic calendar, with no material stats due out of the Eurozone to provide the EUR with direction.

A lack of stats will leave the EUR in the spotlight as the markets speculate on what the ECB is likely to deliver.

With the FED delivering a 50 basis point emergency rate cut expect the ECB to deliver. The last thing that the ECB needs is a materially stronger EUR to add further pain to the manufacturing sector and exports.

There is, however, the risk that Lagarde and a number of other members of the Council prefer to hold on for a little while longer. There is a reality that the FED had far more wiggle room than the ECB has…

Throw in the fact that the Eurozone is likely to have been more adversely impacted by the spread of the coronavirus and a hesitant ECB could be quite damming… And that’s before considering how difficult it can be to push member states into loosening the purse strings.

Perhaps this is precisely the circumstance where the Eurozone model just doesn’t work…

At the time of writing, the EUR was up by 0.04% at $1.1140.

For the Pound

It’s a particularly quiet day ahead on the economic calendar,  with no material stats due out of the UK to provide direction.

The lack of stats will leave the Pound on the defensive.

Economic data support a near-term hold on monetary policy, with the British Government keen to provide fiscal support. Such an outcome is Pound positive, which would support a return to $1.30 levels against the Dollar.

The one issue to consider, however, is EU – Britain trade negotiations that are likely to remain Pound negative.

At the time of writing, the Pound was down by 0.05% to $1.2865.

Across the Pond

It’s a relatively busy day ahead on the U.S economic calendar.

Key stats include 4th quarter nonfarm productivity and unit labor costs, January factor orders and the weekly jobless claims.

Barring particularly dire factory orders, we would expect initial jobless claims to have the greatest impact on the day.

Outside of the numbers, U.S politics is heating up, which will likely lead to a build-up of chatter from the Oval Office…

The Dollar Spot Index was down by 0.01% to 97.331 at the time of writing.

For the Loonie

It’s a quiet day ahead on the economic calendar. There are no material stats due out of Canada to provide the Loonie with direction.

Following Wednesday’s rate cut, expect market risk sentiment and crude oil prices to have a muted impact early on the day.

The BoC’s dovish rate cut suggests that more could be on the way, with economic data unlikely to impress in the months ahead…

The Loonie was down by 0.12% at C$1.3401 against the U.S Dollar, at the time of writing, with Wednesday’s dovish rate cut weighing.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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