Bell FX Currency Outlook: The Australian Dollar traded strongly after the Bank of Japan announced further quantititative measures on Friday.

Australia: The AUD pushed beyond the .7100 level on Friday after the Bank of Japan’s announcement to reduce the interest rates it pays on new reserves left by Japanese banks at the central bank by 20 bps from 0.10% to -0.10% pa. This action sent the AUD higher as well as the USD higher against the major currencies. This gave a huge boost to equity markets worldwide and the expectations grew that the ECB also would do further quantitative easing in the near future. We will see a good bit of new data this week beginning today with the latest PMI figures from China around midday. The market expects a figure of 49.6 which is 0.1 lower than December’s figure. Any significant change from that figure could move the AUD either way in the short term. Also today we will see the local AiG manufacturing index figures, latest house price data, inflation numbers and the RBA commodity index figures. Tomorrow the RBA will announce their decision where no change is expected in our cash rate of 2%. On Friday the latest Statement on Monetary Policy will be released and that will be closely scrutinised.

Majors: The Bank of Japan added another dimension to their existing program of expanding their money base by JPY80trn per annum and their asset purchases of Japanese government bonds of JPY80trn per annum by lowering the interest rates paid to Japanese banks that leave excess balances with the central bank from 0.10% to a negative 10 bps as a way to encourage more lending by the banks. The yield on Japanese 10 year bonds fell from 0.22% pa to 0.11% pa after this announcement. The USD finished stronger by 2% versus the JPY although at one stage it was more than 3% stronger. In the US the first estimate of GDP for Q4 2015 came in at 0.7% which was lower than expected while private consumption rose 2.2% which was higher than anticipated. Exports fell by 2.5% qoq due to the strong USD. The latest University of Michigan’s consumer sentiment survey came in at 92.0 which is slightly lower than December’s figure. The Chicago PMI figure for last month came in at 55.6 which was much higher than the 45 number expected and better than December’s 42.9 figure. This bodes well for a good ISM manaufacturing figure due to be relased tonight.

Economic Calendar 01 FEB

  • AU AiG Perf of Mfg Index Jan
  • US ISM Manufacturing Jan
  • CH Non-Manufacturing PMI Jan
  • CH Manufacturing PMI Jan

Bell Fx

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