STO Fundamental - Aussie dollar finds reassurance in rate call

Aussie dollar finds reassurance in rate call

07 / 03 / 2017 | Market News

Today’s focus may well revolve around that US trade data, as the accompanying narrative from Donald Trump could cause some market reaction. Critically there’s a risk that a widening of the deficit will reignite talk of trade tariffs, something that is going to be negative for global growth and could see fall-out across the board. The DOW remains just below the 21,000 level, but with confidence lacking at these levels, this could be the sort of signal that would be sufficient to initiate another leg lower for the benchmark index.

The Traders’ View

Our prop desk is calling time on the dollar’s latest run higher, with the currency pairs GBP/USD and EUR/USD both finding some favour. Sell orders remain intact on US equity index positions, too.

Fundamentals – Aussie dollar finds reassurance in rate call


The Reserve Bank of Australia confirmed that rates would remain unchanged at 1.5% overnight and despite this having been widely anticipated, the news appeared to offer markets a degree of reassurance. AUD/USD has recovered last week’s losses as a result and has retaken the 0.7600 handle, at least for now. That prospect of a US rate hike next week plus the overhang of slowing growth in China may well serve to keep a lid on the quantum of further gains for the Aussie dollar, but the import/export data from China that’s slated for release tomorrow could be the next key provider of direction.

EUR/USD has been drifting lower since the start of the week but the pair was unmoved by a notable shortfall in German factory order data that was posted this morning. This could suggest that the market is reluctant to push much lower – mounting inflationary pressures do mean that the ECB will have to tread carefully with regard o further stimulus measures, so the revised Q4 Eurozone GDP print that’s due at 10am GMT will be under scrutiny too. Any overshoot here could serve to galvanise support for the common currency and pave the way for further gains.

At 1.30pm GMT this afternoon we have the latest US trade balance data scheduled for release, covering January. The concern here appears to be that any expansion in the deficit will reignite Donald Trump’s calls for weighty import taxes, and this is a move that is seen as having the potential to slow growth on a global basis. With this in mind, anything that comes in a long way from expectations on either side could be seen as having the potential to be dollar positive.

Oil prices have held up reasonably well to yesterday’s news of lower targets of Chinese growth although this provides another headwind in terms of crude prices pushing back towards $60/barrel. Again that US trade data – and any accompanying talk of tariffs that could slow global growth – could add further downside pressure to crude in the near term. There’s certainly the potential for some profits to be booked from here.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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