Trade optimism buoyed risk-on currencies with the AUD outperforming most currencies.
BOE Surprise Split Rate Decision
The Bank of England surprised markets with a more dovish outlook than expected with two BOE officials unexpectedly voting to lower interest rates last night to protect against an economic slowdown. BOE Governor Mark Carney said they would consider a rate cut if global and Brexit headwinds do not ease. Markets had widely expected the decision to be unanimous, holding interest rates steady at 0.75%. The decision, however, was split 7-2 and pushed the pound lower with markets now pricing in an 80% chance of a rate cut by next year.
China and US Agree to Roll Back Tariffs in Phases
Global stocks and commodity currencies rallied on news that the US and China have agreed to cancel tariffs on each other’s products as part of the first phase trade deal. China said it had agreed to remove tariff’s in phases and media also reported that Beijing are considering removing restrictions on poultry imports. Chinese Commerce Ministry spokesman Gao Feng said tariff cancellation was an important condition for any agreement, one that both countries must simultaneously cancel some tariffs on each other’s goods to reach the phase one pact. A deal may be signed later this month between President’s Trump and Xi at a venue yet to be decided. The NZD edged higher on the news and opens at .6367 this morning up from last nights close of 0.6348 on the wholesale rates.
Australia Trade Rises in September
Australia’s trade surplus increased to AUD7.18 billion in September from a revised AUD 6.62 billion in the previous months and compared to forecasts of AUD 5billion. The better than expected trade balance was on the back of high iron ore prices. Exports rose 3% from a month earlier to an all-time high of AUD 43.22 billion in September and Imports also increased 3% to AUD36.03 billion, the second highest on record. The AUD is currently sitting at 1-year highs against the NZD.
Focus now shifts to the Reserve Bank of Australia’s statement on monetary policy at 1.30pm today for any clues about future rate cuts. This announcement follows the RBA holding interest rates at the record low 0.75% on Tuesday.
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