Australia: The AUD opened yesterday trading around the USD1.0200 level and fell down below USD0.9950 at midday as huge margin calls and stop loss selling triggered extensive falls. The AUD then staged a mighty recovery, helped with a turnaround in equity markets and news that the Bank of Japan had intervened in the market to slow the strength of the JPY; this saw the AUD rally to finish around USD1.0250 by late afternoon. Yesterday morning the futures market priced in a 50bps interest rate cut by the RBA at its next meeting, and with this news the CBA and Westpac cut its fixed term mortgage rates, while not long after the ANZ also cut its term deposit rate by 20 basis points.

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Some people suggest that maybe a rate cut in Australia will happen this year given the global turmoil; and the RBA does have the luxury of being able to cut rates if needed. Although given the steps in recent days by both the Federal Reserve and the European Central Bank, the RBA may just sit and wait to see how the events play out before making a move. Yesterday’s local data saw the Australian housing finance for June come in flat while investment housing finance fell 4.4%. The Australian NAB Business conditions for July softened to -1 from +2 in June.

Majors: Overnight comments from the US FOMC meeting saw offshore equity markets turn around and the USD lose ground as the FOMC statement said they would commit to keeping rates exceptionally low “at least through mid 2013” rather than the “extended period” which they have repeatedly said previously. The Fed downgraded their assessment of the economy’s growth while noting that flattening household spending and weakening labour growth will mean a slower recovery than had been expected. The Fed also said that they will continue to re-invest maturities from its Treasury QE portfolio and discussed the use of “a range of policy tools” to promote stronger recovery, with the market thinking a QE3 is on the cards.
Economic Calendar
AUS Westpac Consumer Confidence Aug
CH Trade Balance Jul
JN BOJ Minutes from July Board Meeting