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 saw a sharp selloff on Friday night follow the announcement of policy
easing by the PBoC.

Australia: As stated above, the big news for markets on Friday was the unexpected reduction in the Reserve Requirement Ratio (RRR) and benchmark interest rates by the PBoC. The one-year benchmark deposit rate and lending rate will be lowered to 1.50% and 4.35% respectively, while the RRR for commercial banks will be cut by 50bps to 17.5%. Immediately following the announcement the AUD initially rallied up to its high for the session (0.7295), before quickly selling off to reach of low of
0.7200. The AUD weakness has been attributed to both broad based USD strength as well as markets viewing the policy easing by the PBoC as being reflective of sluggish underlying economic fundamentals. It will be an important week for currencies with central bank communication to emerge from meetings at the Fed, the Bank of Japan and the RBNZ. Inflation data in Australia will also be noteworthy, as will the Q3 GDP numbers in the US.

Majors: The USD was the big beneficiary of the PBoC announcement, with the EUR and JPY being hit the hardest. The EUR fell 0.82% is now trading around 1.1000, its lowest level since mid-August. This is despite the euro area preliminary composite PMI data printing stronger-thanexpected in October (54 vs mkt 53.4), suggesting that activity in the euro area has remained relatively resilient. Equity markets extended their gains, with investors buoyed by the unexpected rate cut in China and solid US corporate earnings results. The Euro Stoxx 50 gained 2.2% and the S&P 500 1.1%. US Treasuries sold off and the curve steepened with the 10-year Treasury yield 6bps higher at 2.09%. It was a mixed session of commodities. Oil and iron ore prices eased while gold was largely unchanged. Tonight looks to be relatively quiet, with the only data releases
being US new home sales and the Dallas Fed manufacturing business index for October.

Economic Calendar
26 OCT

  • US New Home Sales Sep
  • US Dallas Fed Manufacturing Activity Oct

27 OCT

  • NZ Trade Balance Sep
  • AU ANZ Roy Morgan Weekly Consumer Confidence Index

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