Today’s Key Market Drivers: 5th June 2019
Aussie Dollar higher post RBA rate cut.
The Australian Dollar was rallying strongly along with the Kiwi Dollar Tuesday as hopes a Mexican and China trade deal can be reached along with the US Fed Chief signalling a rate cut may be required.
The RBA as expected slashed the official interest rate by 0.25% and with a full 0.50% cut in the cash rate already fully priced in by the market it was no surprise to see the Aussie Dollar steady post official statement and then rally strongly.
RBA Governor Philip Lowe confirmed in a speech Tuesday evening “it is not unreasonable to expect interest rates to fall further”. So why isn’t the Aussie Dollar declining? As mentioned above the rate cut and future cuts are old news and Tuesday’s US trading session had “new news” to focus on.
Kiwi Dollar surges as traders abandon the greenback.
It is no surprise to see the Kiwi Dollar outperforming under the current market conditions. The official cash rate at the RBNZ is 1.75% and whilst the US Fed is still 0.75% higher if the US central bank begins to drop rates in the second half of 2019 the Kiwi and the Aussie Dollars would likely be well supported.
Chinese officials commented on Tuesday they were still hopeful a trade deal with the US can be reached in coming weeks and this immediately sent Asian currencies including the AUD and NZD higher. Any goods news surrounding a China / US trade deal is going to be good news for traders looking to long the AUD and NZD.
Beware Australian GDP figures today have the potential to curb the Aussie Dollars recent rise.
First quarter GDP figures for Australia are set for release on Wednesday morning and have the potential to bring the AUD back lower. Economists are expecting first-quarter growth to have risen by 0.4% or 1.8% annualised. Investment banks and hedge funds may use the GDP numbers to exit or add to their long positions depending on the number released. Anything under the markets estimates is going to see the AUD sold off and if the number exceeds traders’ expectations the upward pressure on the local currency will continue.
More high impacting US and European data misses estimates.
Tuesday’s Euro Area inflation data missed estimates as did US Factory Orders. Inflation in the Euro Area fell in May to 0.8% (Year on Year) when economists were expecting 0.9%. The Euro fell sharply on the news and gave traders a further reason to believe the ECB will need to ramp up the printing presses in 2020 and inject more stimulus into the European economy. US Factory Orders fell -1.0% in stark contrast to last months +1.9%. The US Dollar continued to weaken post the news as traders continue to price in their expectation of rate cuts from the US Fed.
Jerome Powell speaking in Chicago on Thursday said the Fed was “watching current economic developments” and would do whatever is necessary to continue to support the economy. Traders took Powell’s comments to mean a rate cut was on the table and the S&P 500 surged 1.8%. Lower interest rates are going to be good for stock prices in the US and the same impact will also be felt on the ASX 200 after the RBA’s recent statement. Chairman Powell went on to say the Fed is closely monitoring the China v US trade dispute but is still confident US inflation will reach the Fed’s 2% target in coming quarters.
CNBC reports that the CME FedWatch suggests a 90% chance of a US Fed rate cut in September and an 80% chance of a second cut in December.
More high impacting data today.
China will release another important manufacturing gauge today with PMI Composite numbers. Euro Zone Retail Sales and the monthly private ADP jobs report is also due for release. Economists are expecting the US economy to have added 183,000 jobs in May. Anything under this number is only going to add more downward pressure on the US Dollar.
Focus on two things when trading. Lose small, win bigger. End of story!
About the Author: Andrew Barnett
Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).
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