Today’s Key Market Drivers – 7th September 2017

In an unexpected move on Wednesday, the Bank of Canada surprised financial markets lifting the official cash rate to 1.00%, which is the second interest rate increase from the BOC this year. The unexpected announcement sent the Canadian Dollar soaring against all its rivals and extended the current trend against the US Dollar which is trading below the 200 EMA on the weekly chart for the first time in 5 years. Other than the Canadian Dollar the US Dollar was broadly supported against most of its rival’s due to the fact Donald Trump agreed with lawmakers in Washington to extend the US debt limit until the 15th December. The Yen on Wednesday was sold and the greenback and other base currencies bought back against it as military tensions with North Korea seem to be evaporating and there was no need to add to safe haven positions.

The Australian Dollar remains supported after the RBA left the cash rate on hold at 1.5% on Tuesday and GDP figures released on Wednesday missed market estimates. Growth in the second quarter in Australia was expected to be 1.9% on a YOY basis but the figure released was 1.8%. As I write this morning the AUD v USD is trading above 0.80c and if the price can stay above the 0.80c mark it will be the first time in 8 years the AUD v USD has closed a weekly candle back above the 200 EMA on the weekly chart. I appreciate we don’t usually trade weekly charts however with the US Dollar on the decline and the AUD a popular carry trade it would not surprise me to see the local currency finish the year strongly provided the negotiations continue positively with North Korea, China and Russia.

There is plenty of high impacting news to close out the week with another major Central Bank reporting today. The ECB is expected to gradually move towards reducing its current stimulus program and zero interest rate policy in the coming 12 months but it is a delicate balancing act for the bank. If it quits the stimulus program and begins to raise the official cash rate too soon the Euro will only continue to rise higher and this could slow inflation and growth as a higher currency makes the Euro more expensive and the Euro Area less competitive. The Euro is off its recent highs and today’s speech and press conference from Mario Draghi will be closely watched to see whether he tries to jaw bone the currency lower. For example, he could elect to say the strength in the Euro could hamper inflation, which would send the Euro initially lower and then later in his speech confirm the ECB will at some point in the spring reduce its stimulus program. So, he’d be speaking from both sides of his mouth trying to ensure he doesn’t send the Euro higher but at the same time confirm the bank will need to move to tighter monetary policy.

 

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 key-note 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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