Good morning

The Reserve Bank of Australia (RBA) has kept their bank rate unchanged at 2.50% and repeated their forward guidance of steady rates. The steady fall in both precious metals, commodities, and oil has kept the RBA’s rhetoric mostly unchanged. As a result of these comments the AUDUSD has bounced back to trade around 0.8500 again. Having said that the continued slowdown in China and the EU has weighed heavily on the AUD and we expect renewed/continued pressure in the coming months.

Apart from  the RBA, we have BoC (Canada) Wednesday, and BoE (UK) and ECB (EU) on Thursday. No change is expected from any of the aforementioned. In fact it is safe to say interest rates are unlikely to budge at least until end Q2- Q3 2015. The data does not lead itself to warrant raising rates and the mismatch in global growth re-enforces this point.

The fallout from the drop in oil prices will obviously start showing itself in the coming months as the data is published. There will be winners and losers on both sides. Marginal oil companies will struggle to stay afloat, the big oil producers will continue to argue amongst each other (OPEC refused to take action to support prices) and the consumer will hopefully be the biggest winner when they fill their car up. Already the gas price in the US has dropped 50c a gallon. Unfortunately the same cannot be said for the UK and EU where prices remain “abnormally” high. What is certain is we are paying over the odds for our fuel. Then again what option do we have!!! Between the high Govt. taxes and the oil companies trying to squeeze every last drop out of us, the consumer will continue to pay over the odds. Good old demand and supply!!!

USDRUB (Russia) hit all time lows of 53.96 before CB intervention brought the rout under “control”. The RUB is trading at 51.25 as I write this. I can just imagine the conversations being had yesterday at the Politbureau and what needs to be done to stop the RUB’s utter collapse. The currency has now fallen an eye watering 48% since the summer. While this obviously goes some way to help oil/metal/gas producers (selling in USD and converting into RUB), it is the local industry that imports raw materials who are getting “shmaltzed”. The bad news is the CB has floated the RUB which is now at the mercy of the market. They certainly do not want to be left with egg on their faces, so best thing is to take a deep breath and watch the game unfold.

USDILS on the ropes again trading at 3.9500 as I write. Remember just a couple weeks ago we were “battling” to break 3.81/3.82 level. A distant memory wouldn’t you say. The BoI will probably have to give the market something to smile about or risk seeing the ILS climb above 4.00 in the coming days/weeks. The good news for the most part is the high tech industry which for the most part sells its wares in USD and is thus immune from the recent depreciation in the ILS. Again it is the import market that will suffer (oil/textiles/Vehicles). Like the other EM currencies, the ILS will not be sparred and further losses are expected.

GBPUSD recovered yesterday to trade after stronger Manufacturing PMI numbers were published. The GBP rallied through to 1.5740 (currently 1.5720) while vs the EUR the GBP rallied from 0.7975 (1.2540) to 0.7915 (1.2635) currently. I know I have said this many times but I am forced to say it yet again. The GBP will FALL against the USD while the GBP will RISE against the EUR. The pullbacks from this are normal and expected. But one has to look at the big picture and all the signs point to my thoughts above. Things would have been very different had the UK’s GDP been matching that of the US’s. So US GDP 3.90%, UK 0.80%, EU 0.1% pretty much sums up what I was saying.   US > UK > EU. European holidays are the way forward. However FEAR NOT, if you have to buy USD, PLEASE give some serious thought to HEDGING via forwards or options. But do something because come 2015 we will not be trading around these levels.

Have a good day ahead