In a speech made yesterday Assistant RBA Governor Guy Debelle said the Central Bank has scope if needed to cut interest rates should the RBA feel the need to counter the negative influences of a consistently high dollar. Following Mr Debelle’s speech the Australian dollar fell from an opening level of 1.0290 to reach a mid-afternoon low of 1.0250. Keeping in mind there is no secret to the fact Monetary Policy can be used directly to manipulate the exchange rate, thus far the local economy has seen 1.75 per cent worth of interest rates cuts in the past 15 months with the overall impact on the dollar being minimal. In overnight happenings the Italian elections continued to weigh on risk correlated currencies pulling the Aussie towards 1.02 before better than expected US data helped drag us back up to where we find it this morning currently changing hands at 1.0235.
We expect a range today of 1.0185 – 1.0260
New Zealand Dollar:
The Kiwi has followed risk aversion lower over the last 24 hours with concerns over what the lack of result in the Italian election could mean for the European recovery. With bond yields climbing, many investors are pushing back their forecasts for growth in the Euro region with the chances of a fresh bout of sovereign debt issues mounting. The low around 0.8230 against the USD was seen during European trade before some positives out of the US saw support gather and some lost ground made up. US new homes sales and consumer confidence came in better than expected, both indicating the Americans are moving on from the dips that occurred following fiscal cliff concerns in December. Meanwhile this morning we open currently at 0.8250 against the Greenback with trade balance being the main focus for investors locally this morning.
We expect a range today of 0.8315 – 0.8375
Great British Pound:
After the strong selloff in the pound on Friday night, it seems the pound was well placed to pick up some of its recent losses from a falling Euro with EUR/GBP falling back below 0.8650 and in the process pulling GBP/USD back above 1.5200 leading into London’s open yesterday. Overnight in the UK we had UK inflation report hearings which saw several BoE members suggesting they are open to further quantitate easing even with the prospects of rising inflation which saw the cable lose the 1.52 level and drift lower to where we find it this morning trading at 1.5130. Meanwhile on the pacific cross the pound is currently flat against the Aussie (1.4785) and higher against the Kiwi (1.8335)
We expect a range today of 1.4740 – 1.4840
The selloff in the Euro continued for much of yesterday, dragging other risk related assets with it and sending the Greenback and the Yen higher. Italian elections provided no clear winner and with very little prospects of any of the parties finding a common ground to form a coalition, it looks like the stalemate is set to continue for some time and may see Italians back at the polls in May. The main concern for investors is that the resulting paralysis from a hung parliament could see economic and fiscal reforms fall behind schedule and send bond yields back up; which may spread to the other peripheral countries. The Euro reached a low around 1.3025 during their session before some strong support was found at these levels to eventually trade back towards 1.3100 as we headed into the US session; however this was still a good two cents lower from where it was when the election results started coming through. During US trade we had Bernanke making his semi-annual report to Congress, however his comments weren’t as hawkish as many investors might have been expecting as he defended the current asset purchases stating they were supporting the economy with minimal risk to inflation. Also in the US we saw a jump in consumer confidence and better than expected new home sales which helped to provide some support for US equities and saw some flattening out in currencies for the time being.
Construction work done q/q
NZD: Trade Balance, Visitor Arrivals m/m
Retail Sales y/y
GBP: GDP, Total Business investment
Eurozone economic confidence, German GfK consumer confidence
Core Durable Goods Orders m/m, Fed Chairman Bernanke testifies, Pending home sales m/m,