It was an extremely choppy night across currencies with a succession of policy easing initiatives from the central banks of China, United Kingdom and the Europe promoting signification noise across the risk spectrum. The Euro resumed a strong south-bound course falling to lows of $US1.2363 after European Central Bank cut its main refinancing rate by 25 bps to 0.75 percent. The bank also cut the rate it pays for deposits by 25 bps to Zero in an effort to encourage bank-to-bank lending and dissuade banks from side-lining capital. In a post decision press conference, ECB President Mario Draghi highlighted growth risks in the region noting “We see now weakening of growth in the whole of the euro area including countries that had not experienced that before.” Draghi offered no indication this latest effort would mark the start of a series of policy easing initiatives, including a third Long term refinancing operation.
As widely anticipated, the Bank of England held the official cash rate steady at 0.5 percent overnight while voting to step-up asset purchases by £50 billion, bringing the total value to £375 billion. The central bank has been afforded the necessary breathing space to embark on further quantitative easing measures given the marked decline in inflationary pressures amid subdued growth. Further insight into the decision will be available upon the release of the policy meeting minutes on July 18.
Across the Atlanic, the health of U.S employment remained a primary theme overnight with stronger than expected private sector employment data seen as a positive pre-curser ahead of Friday’s official government report. The ADP employment gauge outpaced expectations showing 176,000 new private sector jobs in June, above and beyond the 100,000 expected. Weekly jobless claims also beat expectations with 374,000 U.S citizens applying for unemployment benefits for the week ending June 30 from previous claims of 388,000. Softer than expected ISM non-manufacturing index offset the better than expected jobs data and U.S markets failed to finish in the black with both the DOW and S&P moderately lower on the day.
Earlier in European trade, the Peoples Bank of China made a surprise cut to interest rates for the second time in a month, reducing the savings rates by 25bps to 3.0 percent and the 1-yr lending rate by 31 bps to 6.0 percent. Steps by China to rejuvenate growth by fine tuning policy have provided a positive backdrop for the Aussie dollar which recorded strong gains against its major counterparts, lead by gains against the Euro and Swiss franc. Australian’s traveling to the European region will have a reason to cheer with EURAUD pair falling to the lowest level since the Euro’s inception. The EURAUD pair sliced through points of previous support to hit a euro-era low of A$1.2021 with the pair remaining under ample pressure at current levels of 1.2045. In addition to the supportive nature of China’s interest rate cut, diverging interest rate yields for Europe is also conducive to a stronger Aussie dollar. The local unit rose to fresh 2-month highs of 103.29 US cents overnight but has since retreated to current levels of 102.8 US cents.
Local data in focus today includes the AIG Performance of Construction Index with foreign exchange reserves later in the trading day. With little in way of major data due for release we anticipate regional equity performance will continue to govern sentiment ahead of what is set to be another night of volatility with U.S Non-farm payrolls on the docket.