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The RBA Gives the Aussie Dollar a Boost, with the Pound Steadying after Monday’s Slide

It’s a relatively quiet day ahead on the economic data front, with U.S factory orders the headline stat of the day ahead….
Bob Mason
The Reserve Bank of Australia Sydney New South Wales Australia

Earlier in the Day:

It was a relatively quiet day on the Asian economic calendar this morning. The Kiwi Dollar and Aussie Dollar were in action in the early part of the day.

Out of New Zealand, building consent figures for December provided the Kiwi Dollar with direction in the early hours. Later in the morning, the RBA was in action delivering its 1st monetary policy decision of the year.

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For the Kiwi Dollar

Building consents jumped by 9.9% in December, month-on-month, reversing a revised 8.4% slide in November.

According to NZ Stats,

  • The number of new homes consented in the December 2019 year was the highest annual number since 1974.

The Kiwi Dollar moved from $0.64623 to $0.64611 upon release of the figures. At the time of writing, the Kiwi Dollar was up by 0.08% to $0.6467.

For the Aussie Dollar

The RBA held rates unchanged this morning, which was in line with market expectations. With the RBA on hold, the focus was on the RBA Rate Statement.

Salient comments from the rate statement included:

  • The central scenario is for the Australian economy to grow by around 2.75% this year and 3% next year. This would be a step up from growth rates over the past 2-years.
  • Over the short-term, the bushfires and coronavirus outbreak will temporarily weigh on domestic growth.
  • Household consumption growth is expected to pick up gradually, supported by low-interest rates, recent tax refunds, ongoing spending on infrastructure and a more upbeat outlook for the resources sector.
  • The unemployment rate fell to 5.1% and is expected to remain around this level for some time before easing further to sub-5%.
  • Wage growth is subdued and will remain at around the current rate for some time. A pickup in wage growth is going to be needed for inflation to be sustainably within the 2-3% target range.
  • There are continuing signs of a pickup in established housing markets, with mortgage loan commitments on the rise.
  • The lower cash rate has put downward pressure on the exchange rate, supporting activity across a range of industries.
  • Lower interest rates have also assisted with the process of household balance sheet adjustment.

The Aussie Dollar moved from $0.66849 to $0.67224 upon release of Rate Statement, with no talk of rate cuts driving the Aussie Dollar. At the time of writing, the Aussie Dollar was up 0.45% to $0.6722.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.04% to ¥108.73 against the U.S Dollar.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead on the economic calendar. Key stats due out of the Eurozone include unemployment figures out of Spain and prelim January inflation figures out of Italy.

Barring particularly dire numbers, however, the stats are unlikely to have a material impact on the EUR.

As things stand, economic data out of the U.S this week will need to be materially weak for the EUR to bounce back from Monday’s losses.

At the time of writing, the EUR was down by 0.03% to $1.1057.

For the Pound

It’s a relatively quiet day ahead on the economic calendar. The UK’s construction PMI for January is due out later today.

While we can expect the PMI to influence, uncertainty over what lies ahead will continue to pressure the Pound.

MPC members voted 7-2 in favor of holding rates unchanged last week. While the vote was taken as a less dovish stance, members remained open to a near-term rate cut.

With stats on the lighter side this week, the markets will need to digest economic indicators in the coming weeks to price out a rate cut.

A return to weak numbers, coupled with Brexit uncertainty, could see the Pound come under more pressure in the coming weeks.

At the time of writing, the Pound was up by 0.04% to $1.3000.

Across the Pond

It’s a quiet day ahead on the data front.

Key stats due out of the U.S include December factory orders. As we saw in response to Chicago PMI numbers last week, there’s plenty of Dollar sensitivity to the stats at present.

Expect any unexpected slide in orders to weigh on the day.

Forecasts are Dollar positive, with factory orders forecast to rise by 1.2%…

Outside of the numbers, market risk sentiment will also provide direction.

At the time of writing, the Dollar Spot Index was up by 0.05% to 97.852.

For the Loonie

It’s another quiet day ahead on the economic calendar, with no material stats due out of Canada.

A lack of stats will leave the Loonie in the hands of crude oil prices and sentiment towards the global economic outlook.

The Loonie was down by 0.02% at C$1.3288 against the U.S Dollar, at the time of writing.

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