• Aussie dollar falls to 7-month lows overnight as commodity prices continue to slide;
• The fallout from Scotland’s rejection if independence continues, Sterling remains supported;
• Dollar loses momentum following weakened home sales data.
The typically resilient Aussie dollar continued to succumb to greenback strength overnight, only managing to find its feet following weakened data from the US. As commodity prices continue to slide, the RBA’s wishes to achieve a weaker local currency in order to assist economic expansion continue to get better and better, the Aussie breaking below $0.89 during the London session. Commodity markets began to slide following comments from China’s finance minister which insinuated that government will not be making any significant changes to policy based upon individual economic indicators, quashing hopes of additional monetary stimulus in the short term. Further negativity stemmed from comments by Nouriel Roubini suggesting GDP may slow to 2% in 2015 based on slowed Chinese commodity imports which may warrant further rate cuts by the RBA. The Aussie dollar currently trades around $0.8878.
Clarification of Scottish unity with the United Kingdom saw Sterling drop a weight that had been on its shoulders for some time and the pound recovery continued overnight. Uncertainty still surrounds how much power will be handed to Scotland following such strong support for the Scottish National Party and this will likely limit Sterling gains somewhat, however Sterling is once again being viewed from an economic perspective rather than driven by the economic and political difficulties that would have been consequential of a ‘Yes’ vote. As two policy makers from the Bank of England continue to call for a hike in interest rates, Sterling will continue to be fuelled by speculation of tighter policy in the short term but may struggle to make further headway against a broadly supported US dollar.
Following last week’s FOMC and the Fed’s commitment to ending stimulus next month, the dollar remains supported across the board, gains only pared on the announcement of weakened home sales data overnight. Combined with comments from a senior Fed official that a strong US dollar could damage US economic growth, the Greenback rally came to an abrupt halt. Prior to this, we saw USDJPY trade above ¥109.00 yesterday and EURUSD trade as low as $1.2815 as dollar strength prevailed. Comments made by Mario Draghi overnight suggested that Europe’s economic recovery is losing momentum, with reference to slowed second quarter GDP and subdued inflation. It would be fair to assume that stimulus measures by the ECB will weigh on the Euro for some time, particularly as the US move towards tighter policy.