ECB meeting: Draghi’s gamble
By Yann Quelenn
Yesterday’s European Central Bank meeting issued its expected no-change to interest rates, and renewed its commitment to quantitative easing – buying enormous quantities of bonds until September 2018. Money supply will continue to grow massively, and so will public indebtedness. The inconvenient truth is: one euro of growth costs far more than what it brings.
The ECB (and the US Federal Reserve) hope that their gamble will pay off: that inflation will perk up to kill the massive debt accumulated, without the central banks having to raise rates. This is buying time by buying assets. And it’s bye-bye to conservative monetary policy.
AUD perks up
By Arnaud Masset
The Australian dollar extended gains for a fifth consecutive day, after the country’s Bureau of Statistics (ABS) reported better-than-expected November employment. Unemployment held steady at 5.4%, while employment increased by 61,600 (seasonally adjusted), beating a median forecast of 19,000 by far. Most of those news jobs are full time (41,900). Part time jobs increased by 19,700. This is good news for the Aussie economy, as it would translate over time into firmer prices, maybe into the central bank’s inflation target of 2-3%.
Since Monday, the Aussie has gained 2.50+% against the greenback. AUD/USD is currently testing the $0.77 resistance area (high from 7 November and a psychological threshold). Commodity prices are pushing up, and the interest differential between US and Australian 2-year treasuries has started to widen. The Aussie should continue to rise.