The Australian dollar got a nice boost this morning when the Reserve Bank of Australia announced that it would not be cutting interest rates this time round. It was also non-committal about the possibility of cuts in the future.
The central bank has apparently decided to maintain a holding pattern pending further developments in the range of factors that influence its decisions. A housing bubble in the major cities is one reason for not reducing, while the need to stimulate economic activity outside of mining argues in the opposite direction. In the meantime the price of Iron Ore, an extremely important export for the country, might have stabilised around $60 per tonne. The Chinese economy, of great concern to Australia because of its importance as a destination for said Iron Ore exports, is now showing a resilience that can only be a welcome development to our antipodean friends.
Euro – dollar downtrend resumed yesterday
The Single Currency (EURUSD) is in a falling trend at present, but this was reversed for a short period yesterday while the market digested rumours that there was a resolution, at long last, to the Greek problem.
At 15:00 London time, however, normal service was resumed, on the release of the US Institute of Supply Managers’ Purchasing Managers’ Index (PMI). This rose to 52.8 from 52.00 expected and 51.5 previously, indicating a further expansion of manufacturing activity in the US. This was enough to bring market participants’ back to the expectation that the Federal Reserve is now on track to begin raising core interest rates, which is a positive for the Greenback (a falling EURUSD means a strengthening US dollar). Janet Yellen and her colleagues have made it abundantly clear that their final decision on the timing for this will be data dependent, so any economic indicator that is consistent with further strengthening of the US economy has the effect of concentrating minds wonderfully.
The rumours about a Greek agreement have not proven to be reliable, at least up to the time of writing.