European futures are trading mixed and the focus may remain towards the central bank’s easing policies to stimulate growth around the globe. Traders are relatively calm after the news that Greece is making a progress to win the support of other European countries in order to secure its loan payment, but first things first, and it is the RBA which has printed headlines last night.
Another day and another central bank has cut the interest rate in order to boost their economy. RBA is the 13th Central bank which has lowered its interest rate in a surprise move. The AUD/USD has dropped like a bomb after the central bank lowered its interest rate by 25 basis points and pulled the interest rates to 2.5%. This has pushed the pair towards its low of 0.7650. This is the 15th rate cut if you include other central banks so far this year. If you think that this the lowest point for the Aussie dollar for this year then you must get ready for more surprises, as the RBA has confirmed in their statement today that there is still more room to lower the interest rate to stimulate the economy.
The Australian stock market certainly loved the central bank’s decision and this has made the investors to push the equity market to their seven year high. If there is any easy trade for traders to make, it is the central bank interest rate decision. As every time they lower their interest rate, the currency will fall like a stone and the stock market will shot up like a rocket- a pattern which has emerged over and over, for the past the few years. Slower growth, weaker unemployment are some of the elements which pushes the central banks to this decision, so perhaps, traders should stop taking this as a surprise.
Back in Europe, Greece’s new finance minister is swinging from all sides and has revealed a brand-new plan for his country which could ease off the debt stand-off situation. His new proposal includes swapping the outstanding debt with growth linked bonds and tighten the country’s grip around the wealthy tax evaders. His comments have generated headlines when he said that he is no longer looking for a write off of countries debt of 315 billion Euros and invented a new term “menu of debt swaps”. Although it may take a while for the creditors to get their head around this new idea proposed by him which he calls “smart debt engineering”, but I suppose he will still face a stonewall when it comes to the ECB and Berlin.
Mr Varoufakis, the new finance minister, is not shame full in asking help to reform his country as he said today that he does need help from his creditors and he needs more fiscal space if the creditors do want to see the country continue on this path of reforms rather than suffocate. I believe the minister is doing an excellent job on his European tour to build more support for his country so that they can achieve a healthier economy. The finance ministry is hopeful that the ECB will keep Greece’s financial system afloat by injecting liquidity with more favourable terms and their credit expiry date could also be extended to June 1. It is interesting to see how the stock market is reacting to the optimism of the new finance minister because the equity market was down nearly by 40% in the past week and only yesterday it is up by 11%- a massive gain for a single day.
The US stock market reversed its direction towards the upside yesterday. This is despite the fact that the US manufacturing ISM data printed extremely frugal reading. Need personal income and spending report released yesterday acted very much like a mummy and had no impact on the US dollar however, the Manufacturing ISM index data really punished the US dollar especially when investors absurd that the construction spending was also well below the forecast and this compounded the pain for the dollar. What really important this week is, is obviously the US non-farm payroll data breaches to you on Friday. The aliment which can make or break the US dollar rally would obviously be the wage growth and if that pigs are the The dollar could have an upside spike by regaining its momentum and vice versa.