The US$ is generally firmer on Thursday (DXY: 96.40), pushing the metals a little lower, while stocks are unchanged, largely ignoring the SOTU speech from Donald Trump. All the real action was in the Aud$ on Wednesday, which has fallen sharply following the speech from RBA Governor Philip Lowe, who dropped the rhetoric that the next interest rate move is more likely a hike than a cut. Instead, he said the probabilities of hike and cut are now more “evenly balanced”. The Aud$ has dropped from 0.7250 to currently sit just above 0.7100 and still looks very heavy, and to an extent is dragging the Kiwi with it.
On the data front, the US trade deficit narrowed to US$-49.3 bio in November, versus expectation of -$54.0 bio, while Germany factory orders dropped sharply by -1.6% mm in December, versus expectation of +0.3%, and -7.0%yy, which did little to assist the Euro. The German data raises the possibility of recession and will keep the pressure on the Euro, while the EU also slashed the 2019 Italy GDP forecast to 0.2% (from 1.2%), which also won’t help. It is worth keeping an eye on Sterling, where the political pressure is ramping up ahead of the March 29 date for a No-Deal Brexit, and cannot be good for Cable. European council president Donald Tusk today said that there is a ‘special place in hell’ for those who backed Brexit without a plan! This comes just 24 hours before his major meeting with Theresa May in Brussels. Should be an interesting get together!
Thursday will kick off with the NZ Unemployment (exp + 0.3%qq, 4.1%yy), the Australian AIG Performance of Construction Index and a speech from the Fed’s Powell – during the Asian time zone – which could produce some exaggerated volatility in the thin conditions given the ongoing Asian holiday for the Chinese NY. After that the only event of real importance will be the BOE Meeting/Statement/Minutes/Vote Count/APP Facility, where rates are expected to remain on hold, with the BOE likely to take a very cautious stance given the ongoing Brexit negotiations although the risks to economic growth forecasts look to be to the downside. Other points of interest during the session will be the German Industrial Production for December (exp 0.6%), UK NIESR GDP Estimate, US Consumer Credit Change and the weekly Jobless Claims. Have a good day.
Economic data highlights will include:
Thur: NZ Unemployment, AIG Performance of Construction Index, Japan Leading Economic Index, Coincident Index, German Industrial Production, BOE Meeting/Statement/Minutes/Vote Count/APP Facility, NIESR GDP Estimate, US Consumer Credit Change, Jobless Claims
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