- The Australian dollar was hit hard on Thursday, falling heavily despite the release of a strong Australian jobs report for January.
- Westpac Bank became the first of Australia’s majors to call for RBA rate cuts this year.
- A report that China has banned Australian coal imports at a major northern port saw the Aussie dollar tumble on heightened geopolitical risks.
- RBA Governor Philip Lowe will speak early in the Asian session.
The Australian dollar has been slammed, weighed down by a combination of growing RBA rate cut talk and geopolitical concerns surrounding China.
Here’s the scoreboard at 8.30am in Sydney on Friday.
AUD/USD 0.7093 , -0.007 , -0.98%
AUD/JPY 78.52 , -0.87 , -1.10%
AUD/CNH 4.7694 , -0.0421 , -0.87%
AUD/EUR 0.6258 , -0.0059 , -0.93%
AUD/GBP 0.5440 , -0.0048 , -0.87%
AUD/NZD 1.0416 , -0.0027 , -0.26%
AUD/CAD 0.9379 , -0.0059 , -0.63%
After opening the session at .7163, the AUD/USD rose to as high as .7207 midway through the session, assisted by the release of a strong Australian jobs report for January.
However, Westpac Bank ensured the rally didn’t last long, becoming the first of Australia’s big four bank’s to call for rate cuts from the RBA this year.
“We have revised down our GDP growth forecasts for 2019 and 2020 from 2.6% to 2.2%,” said Bill Evans, Westpac’s Chief Economist in a statement.
“With the slower growth profile we now expect to see the unemployment rate lift to 5.5% by late 2019. That makes a strong case for official rate cuts to cushion the downturn and, in turn, meet the RBA’s medium term objectives.
“Westpac now expects the Reserve Bank to cut the cash rate by 25 basis points in both August and November this year.”
The announcement saw markets move to price a full 25 basis point rate hike by the end of the year, helping to drag Australian bond yields and dollar lower.
The Aussie was delivered a further hit in late Asian trade following a report from Reuters that China had banned imports of Australian coal at the northern Chinese port of Dalian, sparking renewed concern about a growing rift between the two countries.
“Dalian handles around seven million tonne per annum of Australian coal imports, equivalent to around 2% of Australian coal exports,” said Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank.
“More importantly, though, the announcement crystallises fears that started in early February that China is deliberately targeting Australian coal imports.
“In early February China lifted waiting times from 25 days to 40 days for Australian coal to clear customs at a number of ports.”
China accounts for around 23% of Australian coal exports.
The news saw the AUD/USD slump to as low as .7072 before partially recovering in late trade as Australian Treasurer Josh Frydenberg took to the airways to assure markets that Australia’s relationship with China remained “strong”.
It’s based on mutual respect and mutual interest and the relationship, both at a people-to-people [level] as well as the trade and economic side, is very important to both countries,” he told ABC radio on Friday.
“I think that the relationship is strong, that our exports to China will continue to be strong, as they have been in the past.”
The Aussie also fell heavily against all the major crosses except the New Zealand dollar, the latter also undermined by concern that China could take similar action against New Zealand too.
Turning to the day ahead, most interest in the first half of the session will be on RBA Governor Philip Lowe’s semi-annual testimony to the House of Representatives Standing Committee on Economics from 9.30am AEDT.
“He’ll speak about the economy, policy and no doubt other issues, the Royal Commission and more,” said David de Garis, Economist at the NAB.
“We’ll be interested to see whether the Governor Lowe throws more light on how housing is proceeding, unpacking the Bank’s thinking and research in the special paper on housing and implications for the economy presented at this month’s Board meeting.
“The market is also interested in teasing out the relative upside and downside risks to the economy. Is the domestic outlook tilted more to the downside given that Bank lowered the growth outlook for household consumption?”
Aside from Lowe’s appearance, markets will also receive inflation data from Japan, Chinese new home prices and New Zealand credit card sending during the session.
Later in the day, the main highlights will be Eurozone inflation, German business confidence and detailed Q4 GDP and Canadian retail sales.
On the central bank front, Williams, Bostic and Clarida will deliver speeches as will Mario Draghi of the ECB.
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