20150203 – EASY DOES IT.. FOR NOW

Good morning

High Low High Low
EUR/USD 1.1351 1.1321 USD/ZAR 11.5528 11.4891
GBP/USD 1.5048 1.4988 GBP/ZAR 17.36 17.25
EUR/GBP 0.7560 0.7536 USD/RUB 68.80 66.80
USD/JPY 117.71 116.87 USD/NGN 190.5 187.6
GBP/CHF 1.3988 1.3874 S&P 500 2025 2013
USD/ILS 3.9378 3.9138 Oil (Brent) 55.81 54.43

The big news overnight was the cut in interest rates in Australia by 0.25% from 2.50% to 2.25%. One of the few “Western Economies” that still has some powder in its arsenal, the RBA cited the persistently overvalued currency and foreshadowed a downgrade to its economic outlook in Friday’s Statement on Monetary Policy. Having kept rates steady for 1.5 years including a year of neutral forward guidance of a “period of stability in interest rates” the RBA has now embarked on a potentially a NEW easing cycle to stimulate the economy. With a slowdown in China (Australia’s biggest trading partner) well on course, the RBA felt they had no other option other than to start lowering rates. The AUDUSD fell from 0.7825 to 0.7625 after the news trading just above the lows at 0.7640 as I write this. Suffice to say the RBA (like the ECB) WANT A WEAK AUD (EUR) to make exports more attractive and in turn help steady the ship and put it on course to a strong recovery. Market analysts believe another cut could come as early as May, and then wait and see how that has worked into the economy. No doubt the lower oil prices has been seen as a plus for both growth and domestic consumer spending but a negative for inflation (welcome to the world worry about inflation club Australia).

Slightly weaker economic data out the USA yesterday has slowed the USD rally. US manufacturing ISM fell more than expected, to 53.5 from 55.1, while new orders fell from 57.8 to 52.9 in January, the lowest level since January 2014. US construction spending in December was below expectation as well, rising 0.40%. US personal income and spending also showed some slowing into year-end. Wage and salary growth was soft, rising 0.1%, while core PCE was flat month on month. Overall this does NOT change our predictions or thoughts vis-a-vis the USD. PARITY IS COMING, it is just a case of being patient. Non-Farm Payrolls out Friday should help matters. No doubt a corrective pull back above 1.14 (1.1425 target) is probably a very healthy move and one which I would like very much to see. This would help wash out some of the “day traders” and allow the market makers to re-stock the USD hampers ahead of the next leg lower. There is nothing stopping the move from picking up pace once the pendulum swings back in favour of the USD.

Greece remains all over the news. Softer rhetoric from Greek authorities on a likely renegotiation of their aid package helped stabilise the EUR. YESTERDAY MORNING I wrote: “I think to a larger extent CB’s globally have used all their monetary policy bullets and are now looking at market fundamentals (lower oil prices, QE, negative policy rates, buying other assets, keeping rates stable for longer ) to raise GDP levels”. No doubt the ECB READ PARITYFX’s blog because LAST NIGHT ECB’s policy maker Christian Noyer (who sits on the ECB’s governing council and is the governor of the Bank of France) said Greece can quickly reduce its public debt ratio by boosting economic growth, thus casting aside the idea of writing off part of the country’s debt mountain. Greece has the capacity to grow quickly, partly because it has an underutilized workforce, Mr. Noyer said. The country also pays little to service its debt—which stands at around 175% of annual economic output–because European lenders have granted low interest rates and deferred repayment deadlines, said Mr. Noyer. “Greece has the capacity to bring down the debt ratio quite quickly,” Mr. Noyer said in an interview with French radio station France Info. Noyer said that some adjustments are perhaps possible, but the charges on the debt are already very low, continuing that Greece’s recovery program could doubtless be improved to ensure stronger growth and better tax collection. “The new government could have better ideas on a certain number of points,” Mr. Noyer said.  All in all Greece must accept they are PART of the EU, they have debt’s that need servicing, and most importantly   “Greece needs clean up their own backyard before they try to clean their neighbours”. I find it so FRUSTRATING that people want hand-outs (for free) but when it comes to paying it back (or even a portion of it) they start throwing stones and having a hissy fit. Sorry Greeks (and I have many friends there), but like the rest of us you cannot retire on a full pension at 57 years old and go live in Mykonos.



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