The Australian dollar bounced on Wednesday after its central bank opened the door to a possible rate cut. The global economic slowdown forces policymakers to go easy on rate hikes.
Australia’s central bank is only the latest to signal policy easing in the face of economic headwinds. The U.S. Federal Reserve has all but abandoned plans for further rate hikes. Moreover, the European Central Bank also sounded less certain that it will start tightening policy later this year.
The U-turn pushed the Australian dollar 1.5% lower, putting it on track for its biggest daily drop in a year. Australian short-dated bond yields were set for their biggest one-day drop in more than two years, down 10 basis points.
World stocks too stalled just off two-month highs undermined by the growth worries. Further, U.S. President Trump’s combative State of the Union address weighed.
European shares traded marginally in the black and equity futures signaled a flat to weaker open on Wall Street.
START TRADINGForex – Commodities – Australian dollar 1.5% lower as RBA shifts
Europe’s economic weakness prompted demand for bonds, with German 10-year government bond yields trading around 0.17%. Investors have pushed back expectations that the European Central Bank will hike rates this year.
On the Brexit front, sterling looked fragile at around $1.2951 after losing nearly 0.7% on Tuesday. Weak service sector data underscored damage to the economy from Brexit uncertainty. Theresa May will travel to Brussels on Thursday to tell EU leaders they must accept legally binding changes to the Irish border arrangements of Britain’s divorce deal or face a disorderly no-deal Brexit.
The currency has been supported in recent weeks by belief that a last-minute agreement will avert a no-deal Brexit.
The U.S. trade deficit narrowed sharply in November amid declines in imports of cellphones and petroleum products.
Oil slips below $62 on rise in U.S. inventories. Brent crude, the global benchmark, slipped 24 cents to $61.74 a barrel by 1442 GMT. U.S. West Texas Intermediate (WTI) crude was down 33 cents at $53.33.
China’s financial markets are closed all week for the Lunar New Year holiday. Other Asian markets are also closed for parts of the week, keeping wider market activity subdued.
Sources: Reuters, Investing, CNN money
PLEASE NOTE The information above is not investment advice.