Monday, February 17, 2014

Has the Aussie peaked for now? | Reports that might influence the US dollar today

The minutes of the last meeting of the reserve Bank of Australia board were out waiting for us this morning, having been released at just after midnight GMT. The discussion seems to have centred on the idea that interest rates are more or less where they want them to be at present. However, there are a number of considerations, given that it is some weeks since the board meeting took place and the Aussie has appreciated about three percentage points in the meantime.

Inflation is on the rise, although they seem to expect that this is temporary phenomenon. The real bugbear must be unemployment, which has also increased. And then there is the housing market. One of the major factors in the RBA’s decision not to increase interest rates has been the fear of a property bubble. Now it would appear that one is underway anyway, fuelled, in no small part, by an influx of capital for this purpose from China.

For us, this all means that pressure is building on the Australian authorities to consider some means by which the value of the currency can be reduced. Whether this will be confined to the talking down that was the main tool used in the recent past, or whether there are more concrete measures to be taken, remains to be seen. In the meantime we watch the charts.

Reports that might influence the US dollar today

After the shortened session in the USA yesterday, when the Presidents Day Federal holiday was observed, there are two reports that could have a bearing on the movement of the US dollar exchange rate. These are the NY Fed “Empire State” Manufacturing index and the Wells Fargo / National Association of House Builders (NAHB) housing market index. While always of some importance, these are not normally as closely watched as certain other measures, such as those that deal with unemployment. However, they will have assumed an importance at present because there is a question mark over the tentative recovery in the US economy that was apparent at the end of last year and the start of the current one. This is down to a number of weak Non Farm payrolls reports, less-than-stellar retail sales and an apparent softness in manufacturing.

Many believe that these are related to the severe weather conditions that much of the USA has been experiencing, and therefore represent a temporary blip, but all market participants will be anxious to have confirmation, or otherwise, that this is indeed the case.

Then there is the Consumer Price Index in the UK, which will have a bearing on the Pound Sterling, and the ZEW Survey report on economic sentiment in Germany, which could impact the Euro, given that the German economy is by far the most important one in the Euro zone.

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