US equities and economy boom
By Vincent-Frédéric Mivelaz
American stock markets continued their roll yesterday: Dow Jones Industrial Average: +1.25%, Nasdaq: +1.03%, S&P 500: +0.94%. US industrial production in December rose 0.90% in a month. The US Federal Reserve’s Beige Book report confirmed “modest-to-moderate” growth; increasing difficulties to find qualified workers; modest wage and capital expenditure increase in manufacturing, construction and transportation.
So we foresee no surprises for the Fed’s monetary policy meeting on 31 January. Production, consumer spending, sales and salaries remain at tolerable levels and are well-known to US monetary authorities.
AUD/USD maintains positive momentum
By Arnaud Masset
AUD/USD is on its way to test September’s high at 0.8125. Another key resistance can be found at 0.8295 (high from January 2015). However, the wind can quickly turn, especially if investors’ confidence in Trump starts to build.
The 2-year interest rate differential between Australia and the USA has been quite stable over the last few weeks, suggesting that the recent appreciation of the Aussie is due to USD weakness. Market participants remain sceptical that Trump will deliver on tax reform. They are still unsure to go long USD, even though the underlying economic indicators are all on green.
AUD/USD spent most of the week bound between 0.7930 and 0.8023 – hitting a 4-month high on Wednesday at 0.8023. Unemployment’s rise to 5.5% from 5.4% in the previous month did not move the needle. Since early December 2017, the Aussie has surged across the board, appreciating against all G10 currencies, except for the New Zealand dollar and the Norwegian krone (+1.25% and +0.85% versus the AUD since 3 December, respectively). This is explained by the recovery in the country’s interest rates. Over the last month the entire yield curve has shifted higher, with the 2-year sovereign rising 40 basis points to 2.10%, while the 10-year climbed 37 bps to 2.83%.