Market Overview by FiboGroup - 2015

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The Reserve Bank of Australia cut interest rates today potentially adding fire to an already overheated property market.

At 9pm (AEDT) the local currency was trading US76.57¢, tumbling from US80.00¢ in yesterday's trade.

The RBA, in a move that caught some of guard slashed the benchmark interest rate by 25 basis points to 2.25% in order to tackle the stubbornly high dollar and boost inflation.

Speaking after the release of the decision Governor Glen Stevens noted that commodity prices have continued to fall which will eventually lead to inflationary worries,

"Commodity prices have continued to decline, in some cases sharply. The price of oil in particular has fallen significantly over the past few months. These trends appear to reflect a combination of lower growth in demand and, more importantly, significant increases in supply. The much lower levels of energy prices will act to strengthen global output and temporarily to lower CPI inflation rates".

Regarding the Australian dollar, the governor noted the currency was high by historical standards which lead some analysts to believe that he would like to see the currency fall further even after today's dramatic slide,

"The Australian dollar has declined noticeably against a rising US dollar over recent months, though less so against a basket of currencies. It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy".

Today's move by the RBA on rates threatens to add fuel to the fire of an already overheated property market as people sign up for cheaper mortgages and jump on the property ladder.
Richard Wakelin, director of Wakelin Property Advisory noted that the cut in interest rates will definitely bring more buyers into the market with a large part of them being investors, who the RBA blamed earlier for pushing real estate prices up,

“A cut in borrowing costs will inevitably feed into stronger demand for property, which in turn will push prices up,” he said.

“Investors are likely to be among the groups most responsive to a rate cut.”

“It means their gross funding gap will be less than 1 per cent, an incredible low for investment grade property,”

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The Australian dollar has bounced sharply of a 6 year low after yesterdays surprise interest rate cut from the reserve bank of Australia.

At 10.19pm (AEDT) the local currency was trading US78.06c jumping from yesterday's low of US76.24

In a stunning reversal the Aussie dollar shot back up through the US 78.00c mark after news that Greece had come to an agreement with its creditors on restructuring its debts, and another bounce in the oil price which has gained over 20% in the past week.

The Greek government, in a sign that they are looking for a compromise, offered a deal to creditors that would see them swapping their debt for new growth-linked bonds.

"The market is beginning to see signs of some stability coming into oil and the Greek situation seems to be tilting towards the side of what the market is looking for, which is a retreat from its call for a debt write-down," said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.

Citing falling commodity prices analysts at Goldman Sachs predict that the Australian dollar's rise will be short lived and it will fall to US72.00c this year down from an earlier forecast of US75.00c.The also believe that the RBA will cut interest rates again in May following on from their rate cut yesterday.

The speed with which commodity prices have slumped caught everybody off guard with a negative impact for the Australian economy the Investment bank noted,
“The commodity prices that matter for Australia have fallen faster than even our own bearish expectations. This dramatic change to the commodity complex has material and wide-ranging implications for the Australian economy and policy makers.”

Key news due out later in the week includes the latest monetary speech from the Reserve Bank of Australia as well as unemployment figures from the US which may signal a robust jobs market and keep the US Federal Reserve on track to lift interest rates in the nearest future.

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The Australian dollar is trading higher today after a move by the Chinese central bank to further stimulate the economy in the wake of a potential slowdown.

At 9.43pm (AEDT) the Australian dollar was trading at 78.13c up from 77.50c in yesterday’s trade.

In a sudden move late yesterday, the People's Bank of China reduced the reserve requirement ratio that banks are required to hold by 50 basis points to 19.5 per cent in order to kick start lending and breathe some life into the economy.

“The Chinese government is finally coming to terms that the economy is starting to pullback,” noted analysts at Fibogroup forex brokers.

“First it was a cut in Interest rates by the Chinese central bank and now a reduction in the reserve requirement which shows that the government in China is willing to do whatever it takes to boost the economy and they are not just going to sit and wait.” They noted.

Not everybody believes that the Aussie dollar’s future looks bleak including New Jersey-based fund manager Jeffrey Sica, whose firm Circle Squared Alternative Investments manages around $1 billion in funds

He is betting that the Aussie dollar will be one of the better performing major currencies looking ahead by noting that the Australian economy is financially sound and not about to embark on some stimulus plan like most of the other major economies have done or are about to commence,

“As a currency trader you always bet against the country that’s most desperate in its attempts to stimulate its economy. In Europe, I see this desperation, but I can’t see this in Australia,” Mr Sica said

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The Australian dollar came under pressure during the American session on Friday as the latest Non-Farm payrolls figure hit the market well above expectations.

At 3.22am (AEDT) the local currency was trading at US78.08c after falling as low as US77.77c directly after the announcement.

The Non-Farm payrolls number from the US came in at 257,000 well above expectations of 234,000 while average hourly earnings for the month of January rose 0.5% against a consensus of 0.2% bringing the yearly average wage increase to 2.2%.

This is the 12th consecutive month where the number of new jobs created has remained above the 200,000 level confirming comments made by US Federal Reserve boss Janet Yellen in her monetary speech last week that the labour market is powering ahead.

“This news is definitely going to boost the case for an Interest rate rise,” noted analysts from Fibogroup forex brokers.

“The unexpected growth in wages, which has been the least performing number in an otherwise robust jobs market, is certainly going to help the Feds cause”.

The Australian dollar is likely to remain under pressure as we head towards Monday when the Head of the Reserve Bank of Australia Glenn Stevens gives his latest monetary speech, where he is expected to further talk down the Aussie dollar in the hope that it will reach the central bank’s target of US75.00c in the nearest future.

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The Australian dollar retreated Monday as political uncertainty loomed and trade figures from China hit the market well under expectations confirming fears of a slowdown in the world's second largest economy.

AT 7.35pm (AEDT) the Australian dollar was trading at US77.82c down US77.97c at Friday's close.

Chinese exports for the month of January fell 3,3% from the previous year against expectations of a 6.3% increase while imports fell a whopping 19.9%, coming in well below analysts' expectations of a -3.3% drop.

Julia Wang, Greater China Economist at HSBC, noted that the figures showed a slump in demand from both the internal and external markets and that the government should act to address the problem,

“The foundation for an exports-led recovery looks unsteady at least for now,” she said. “That will put more pressures on domestic demand to drive growth this year. We believe policymakers should deploy more aggressive monetary and fiscal easing in the coming months.”

Also rattling the Aussie dollar today was the threat of Australia plunging into political uncertainty as Prime minister Tony Abbott squared off against colleagues in a leadership challenge that threatened to remove him from office,

Lawmakers in the party voted 61 to 39 against a “spill motion,” which would have removed the prime minister and his deputy leader leaving the positions open to be filled by a vote from party members.

After the vote and looking visibly shaken, Mr. Abbott said,

“The Liberal Party has dealt with the spill motion, and now this matter is behind us.”

Acknowledging that mistakes had been made in the past, Abbott vowed to put the people first and not repeat the mistakes of the two previous governments,

“We are absolutely determined to work for you, the people who elected us,” he added. “We want to end the disunity and the uncertainty which destroyed two Labor governments, and give you the good government that you deserve.”

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The Australian dollar has dived below the US88.00c mark after another round of disappointing data out of China sparked fears of a slowdown in the world's second largest economy.
At 11.08pm (AEDT) the Aussie dollar was trading at US77.68c down from US77.99c in yesterday's trading.

Following on from the disastrous trade figures released late Sunday, China’s consumer price index, a barometer of inflation tumbled to 0.8% in the 12 months to January, falling to its lowest level since November 2009.

The producer price index fell to -4.3% over the last 12months against analysts expectations of a -3.8% decline, dragged down by falling energy and commodity prices.

ANZ Bank's chief Greater China economist Liu Li-Gang noted that the latest numbers are very disturbing and deflation has become a “real risk” for China.

“PPI inflation suggested that the out-of-factory prices remained extraordinarily soft due to sluggish demand for manufactured goods,” he said.

Mr Liu also said that further monetary policy would help and the Chinese government seem willing to act,

“Indeed, China’s central bank cut the reserve requirement ratio (RRR) last week and conducted a large amount of reverse repos before the Chinese New Year, indicating that the central bank has engaged into aggressive easing to head off the deflation risk," he said.

Mr Liu predicts China’s central bank will lower interest rates as we head in to the first half of the year.

The continuing disappointing news out of China is only going to see the Australian dollar dive lower as the price of iron ore, Australia's biggest export comes under further pressure as the Chinese cut orders.

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The Australian dollar has drifted lower today, brushing off the positive home loans figure that came in well above analysts’ expectations.

At 12.23am (AEDT) the Aussie dollar was trading at US77.40c down from US77.69c yesterday.

The Australian Bureau of Statistics reported that home loans in Australia rose by a seasonally adjusted 2.7 %, beating forecasts of a 2% increase and well up on the 0.7% decline in November.

Investor loans jumped 6% from November well above last month’s figure of -2.2% adding fuel to the fire of an already overheated housing market, with some predicting, such as Michael Workman, a senior economist from the Commonwealth Bank of Australia, that the government may have to intervene to cool things down,

“Today’s lending data may prompt additional controls over lending to investors in coming months,” he said.

Another reason behind the jump in figures is that investors may be trying to get in and take out new loans now before new legislation is introduced, according to Stephen Walters, chief economist at J.P. Morgan, Australia

“One possible driver of this upturn is the fear of looming macro prudential tightening, which may draw in a pool of marginal buyers wanting to get in before investor credit conditions get tighter,” Mr. Walters said.

The Aussie dollar may sit tight as the market awaits the release of key employment data tomorrow out of Australia.

The consensus is for an unemployment rate of 6.2%, up on last month’s figure of 6.1% with anything more likely to see the Aussie dollar break down through the US77.00c mark as fears grow of a jobs crisis developing in the local economy.

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The Australian dollar took a hit yesterday after disappointing unemployment data hit the market raising the prospects of a second consecutive rate cut in March.

At 7.21pm (AEDT) the Australian dollar was trading at US77.57c down from US77.17c in yesterday’s trading.

The unemployment rate jumped to 6.4% in January from 6.1% in December according to the bureau of statistics against analyst’s forecasts for a number of 6.2%.

The number of job losses reached 12,200 against an expected decline of 5,000, with most of the cuts coming from fulltime employment, which is a worrying sign.

A JP Morgan economist, Tom Kennedy summed up the situation by noting it was a “shocking report all round”.

“There was not a lot of good news in this report,”

“At this stage the data has been quite mixed, we had some pretty strong housing numbers, but then we get this January jobless number, so it is a very fine balancing act,” he said.

“At this stage we think May is more likely than March, but March is going to be a live [RBA] meeting in terms of market pricing and expectations,” he said.

The number of analysts now predicting a rate cut from the RBA in March has grown to 68% up from 43% before the release of the unemployment data.

The Aussie dollar may come under further pressure as the market awaits the latest monetary speech from RBA governor Glen Stevens that is due out later in the evening.

One of the main reasons why the Australian central bank cut rates last week was concern over the rising unemployment rate so it will be interesting to see if Governor Stevens takes note of yesterday’s news and talks down the Aussie dollar even further.

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The Australian dollar has fallen significantly and is headed for further losses according to RBA governor Glenn Stevens.

Speaking before a parliamentary committee today Stevens noted that although the direction of the currency remains uncertain there are many factors working against it,
"It seems to me that the exchange rate is doing more or less what you would have expected it to do," he said

"Where it will go from here, nobody knows, these things are inherently unpredictable, but I can certainly think of reasons why it may go down some more."

On the topic of Interest rates and unemployment the governor sounded downbeat noting that tumbling commodity prices and sluggish growth forced the central bank to act by cutting interest rates,

“We need more growth,” the governor said. “I had hoped for more signs of intentions to invest and pick up employment by now but we came to the conclusion that the economy needed more help.”

Concerning the dangers of a real estate bubble the governor mentioned that there were some concerns but there were also other factors that needed addressing,

“Developments in the Sydney market remain concerning, but in the end we did not see these trends as overwhelming a case for a further easing in monetary policy that was made on more general grounds,” he noted,

To address the problem of a property crisis Stevens noted that it was up to the government to act to make the cost of new housing more affordable,
“The biggest enemy is the increase in housing values as the other 97% of the population bid up property values,”

“We need more innovative and flexible use of land so the cost of new housing comes down,” he said.

 

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The Australian dollar is sitting tight today due to a lack of economic news and awaiting tomorrows minutes meeting from the RBA.

At 12.30am (AEDT) the local currency was trading at US77.83c slightly lower from US77.83c on Friday.

With markets in the US closed today traders are choosing to sit on the sidelines for the all-important speech from the Australian central bank tomorrow.

The RBA unexpectedly cut rates a few weeks ago to 2.25% so tomorrow’s meeting will be eyed closely for any signs of a further rate cut.

The unemployment rate will be on the agenda with some like OM Financial senior client adviser Stuart Ive noting that the central bank stands ready to act if the job market deteriorates further

"The RBA stands willing to cut rates as the employment situation and the economy continue to stagger along," Mr Ive said.

Australia’s unemployment rate jumped from 6.1% to 6.4% from december through to January.

Bill Evans, Chief Economist at Westpac also noted there is a good chance that the RBA will cut rates again in March although the housing market may cause some concern,

“For now, we are comfortable to maintain our original call for a follow up move in March, particularly given the Bank’s comfort with its initiatives in the regulatory sphere. However we recognize that a perfectly respectable case can be made for the Bank to pause for a month or two to assess developments in the housing market.” he said.

“The most important point is that February is not the end of this rate cycle with another cut extremely likely over the next three months.”

“Consistent with our view that the interest rates are likely to move lower, and as suggested by the Statement on Monetary Policy, we expect the RBA to adopt an explicit easing bias.”

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