Australian dollar coin
A one Australian dollar coin is seen in this picture illustration taken in Sydney, Australia, July 29, 2015. Reuters/David Gray

Bell FX Currency Outlook: The Australian Dollar is lower this morning as the ECB surprised markets.

Australia: The AUD is lower this morning, with yesterday’s RBNZ decision (and a weaker NZD) weighing it down. There was some volatility overnight following the ECB’s decision cut rates (see below), with the AUD touching a high back above 0.7500 before selling off back to current levels around 0.7450. The USD was stronger on the back of a weaker EUR, with commodity prices also consolidating. Copper, crude oil and iron were all a little lower overnight, after a strong run in prices in the last month. The bounce in prices in February provides markets with a degree of breathing space, but with the wave of short-covering now largely done, supportive fundamentals will be needed to drive prices higher. There are no significant data releases out during today’s trading.

Majors: The ECB was the big news in markets overnight, cutting rates by more than the market expected. The refi rate was cut by 5bps to 0.00%, the deposit rate by 10bps to -0.40% and the marginal lending facility by 5bps to 0.25%. It also increased QE by EUR20bn per month (to EUR80bn) and added four new TLTROs. The EUR/USD duly fell, but rallied sharply as ECB President Draghi said that he did not anticipate the ECB will need to cut rates further, with any additional easing coming via unconventional policy tools. The market interpreted this as the ECB reaching the limits of its interest rate cutting cycle. In other currencies, GBP/USD traded in sympathy with EUR/USD. The Dax, FTSE and US equities were all also lower, mirroring the fall in the EUR. In the US, initial jobless claims fell from 277k to 259k for the week to 5 March and suggests that labour market momentum remains intact. It’s a fairly quiet night tonight with the Canadian labour market report the only potential market sensitivity. However after markets are closed tomorrow China will release their trifecta of activity reports: industrial production, retail sales, and fixed assets investment. This could provide some volatility when markets open up on Monday morning.

Economic Calendar 11 MAR

  • UK Trade Balance
  • CA Unemployment Rate
  • NZ Business Manufacturing PMI
  • US Import Price Index MoM/YoY

Bell Fx

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