Global equities higher, RBA Governor speaks in New York, Aussie dollar comes off, ASX futures up 44 points

I feel like Dorothy in Kansas this morning, as the rain and wind whips around our Sydney office. I've never seen so many broken umbrellas in my life, as a gust of 93 kilometres per hour was recorded on Sydney Harbour this morning. In New York last night, Reserve Bank Governor Glenn Stevens enjoyed more mild weather as he gave a speech as guest of a Goldman Sachs luncheon, which was quite telling. Clearly focussed on lower rates to come, here are some of the more poignant phrases that I gleaned from Stevens's remarks:

  • "...over the past few months, the rate of growth of credit for housing has not picked up further"
  • "Incomes of those directly exposed to the resources sector, be it as employees, owners or service providers, are reduced."
  • "Nominal wages generally are lower than otherwise."
  • "The Australian dollar has declined and will very likely fall further yet, over time."
  • "...the fact that many households already carry a considerable debt burden means that the extent to which they will be prepared to reduce saving to fund consumption may be less than it once was"
  • "...the more reluctant households are to lower their saving and increase their spending the harder the government may find it to increase its saving."
  • "So interest rates should be quite accommodative and the question of whether they should be reduced further has to be on the table."
  • "Popular commentary is, in my opinion, too focused on Sydney [housing] prices and pays too little attention to the more disparate trends among the other 80 per cent of Australia."
  • "The Board has, moreover, clearly signalled a willingness to lower it [cash rate target] even further, should that be helpful in securing sustainable economic growth. The Board has been proceeding with a degree of caution that is appropriate in the circumstances. It also has, I would say, a realistic assessment of how much monetary policy can be expected to achieve in supporting the adjustment the economy needs to make."
It is important to note that this is not a transcript of a speech, rather it comprises the carefully-prepared remarks (as all central bank commentary generally is) that were given, and thus considerable thought should be given to the strength of the language used. For example, Stevens says of the Australian dollar that it "will very likely fall further yet" whereas he could have just as easily said "may fall further yet". And while he pointed out that the RBA doesn't necessarily have a tool (in setting interest rates) that would have been as useful as it would have been if households had wage growth and firmer savings/confidence to bring forward spending in a response to lower rates, he clearly thinks that the Government is going to endure ongoing problems with its gap between revenue and spending, especially given the Abbott Government's inability to pass spending reform. So I think Stevens is more signalling that Australians shouldn't expect stellar results from further rate cuts, more than saying that they're not going to bother cutting rates due to the lack of effect.

Today's second chart will show you that the Australian dollar's sell-off last night (black line) far outweighed the strength of the US dollar index (orange line), and much of that coincided with the midnight release of these remarks. My guess is that we'll see some continued selling in the AUDUSD currency pair throughout today's session and subsequent support for the ASX 200 equity index as bets increase of a May rate cut. Be mindful, however, of tomorrow's 11:30am (Sydney) release of Australian CPI figures, which are already factoring in a drop to 1.3% year on year from the last read of 1.7% - the expectation is already quite low, and a higher-than-expected read could reverse of the May rate cut probability.

Today's last chart shows the ASX 200 index cash CFD. Futures are up following a positive night in the US and Europe, and there is some support at 5,850 which might help the confidence of traders today given the heightened prospect of lower interest rates to come.



Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: RBA minutes released at 11:30am, German economic sentiment (ZEW) out at 7pm, all Sydney time.


This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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