Australia Dollar Rebounds Sharply

Both major US indices closed down by 0.3% on Thursday as the tax reform bill hit another snag with Republican senator Marco Rubio coming out to say he will not vote for the bill in its current form. After opening higher, both indices were then weak for the rest of the session. Locally, the ASX 200 has managed to remain above 6,000 despite a small fall yesterday. Shares in Myer (MYR) were hit hard yesterday as the company announced weaker than expected sales performance. The company is seeing reduced foot traffic in its stores and although online sales are climbing, it is not enough to offset the weak store performance.

Both the Bank of England (BOE) and the European Central Bank (ECB) made their interest rates decisions yesterday and both kept policy rates on hold at 0.5% and 0.0% as expected. All nine voting members of the BOE voted to keep rates unchanged but the bank expects to have two further rate hikes in 2018 to bring the rate to 1.0%. The ECB didn’t make significant changes to its statement, just reaffirming that rates will remain at 0 for as long as the bond buying program continues.

The Australian dollar has had a rapid bounce following the US rate decision and is now back at US$0.766. It has now risen by 2.2% in the last five days. Whether this is the break of a downtrend that started in early September or whether it just a temporary bounce after months of weakness is yet to be seen.  

Overnight US retail sales data came out with core retail sales beating expectations with 1.0% growth compared to 0.6% expected. In addition, the prior month was revised up from 0.1% to 0.4% so overall it was a very strong report. UK retail sales also came out yesterday and were stronger than expected. 

Data Releases:

–    US Empire State Manufacturing Index 12:30am AEDT

–    US Industrial Production 1:15am AEDT

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This article was written by William O’Loughlin – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.