Antipodean action overnight: Don’t dream it’s over? | Daily Market Commentary with Jeffrey Halley
Another central banker has “blinked” with the Reserve Bank of Australia (RBA) Governor Lowe shifting to a more dovish stance, joining the Federal Reserve and the European Central Bank (ECB). We can expect more of the same from the Bank of England (BOE) this evening. Governor Carney has been quite vocally Brexit’s Angel of Death and an uber-dove for quite some time, but with central banks shifting policy stance around the world, tonight’s BOE rate decision and Carney’s missives could have a real impact on the GBP.
Globally, many central banks are in a much more unfavourable position to provide the sugar-rush that the markets have become addicted to since the global financial crisis (GFC). The ECB, BOE, RBA and the Reserve Bank of New Zealand are all still at record low levels of interest and the Fed’s headlong rush to unwind quantitative easing and hike rates to put some easing bullets in the gun for a rainy day appears to have been cut short. Should it occur this year, a global downturn would mean the central banks wouldn’t be able to steal future growth to keep the lights on today, which has been their go-to strategy since the GFC. It’s no wonder the millennials of today are so angry.
Climbing down off my soapbox, the markets consolidated overnight in the US, with the USD outperforming, following weak data from Germany. Singapore is back from holiday today but China, Hong Kong, Taiwan and South Korea continue their Lunar New Year festivities, implying that trading will continue its muted theme in Asia. That said, there have been fireworks in AUD and NZD today, which should remain the centre of attention for the session.
Both the Aussie and Kiwi dollar have been taken out back and shot overnight. The AUD collapsed 1.60% to 0.7105 on the back of Lowe’s dovish stance, concerns about the global economy and wilting house prices in Australia. The AUD is a high-beta currency to world trade and China. With another impending shutdown in the US and trade talks with China set to resume next week, the lucky country will be looking anything but in the short term. Traders will be nervously eyeing crucial support at 0.7070 with nothing but a black hole on the charts after that.
The NZD collapsed by 1.70% to 0.6770 this morning as a result of weak employment data. Slowing jobs growth and a high beta to China means the charmed run of the Goldilocks economy may be over for now. Support lies at 0.6705, after which the technical picture looks ominous.
With ridiculously overpriced housing markets, combined with high levels of consumer debt, Australia and New Zealand are my leading candidates for a significant asset price shakeout following ten years of easing by central banks since the GFC. They won’t be the last.
The stock markets consolidated their recent gains overnight, as the State of the Union passed without incident. The continuing Lunar New Year holidays will ensure that trading remains subdued in Asian markets with the attention on Australia and New Zealand. As a result, traders will be looking to see if the FX ructions overflow onto the stock markets.
Gold fell to 1,305.00 overnight as the greenback strengthened across the board. With the geopolitical outlook going quiet, albeit temporarily, one of gold’s price pillars has eroded and this has seen profit-taking set in. This is unlikely to stay calm however, and support in the 1,300.00 region looks secure for now.
Oil sold initially on a stronger dollar, but both WTI and Brent rallied to finish slightly higher at USD53.80 and USD62.60 per barrel, respectively. A lower than expected crude inventory number coupled with high OPEC compliance rescued the black gold and oil overall continues to consolidate at these levels.