The Australian Dollar opened lower this morning to 0.7450 from 0.7495 New York close as AUD reacted to the weekend’s election outcome. Election results is too close to call and possibility of hung parliament on the cards. How does this impacts on AUD? Increasing talk of Australia’s AAA credit rating downgrade would pose risk, as fiscal policy becomes more uncertain.
- Reserve Bank of Australia meeting is on tomorrow, with bond futures indicating very low chance of cut (10%). The RBA is likely to wait for next month for any changes as it assesses the implications of Brexit and receive Q2 CPI data on 27 July.
Development of the Chinese economy and US Fed will be also a major importance. The PBOC has done well avoiding market scares as offshore renminbi (USDCNH) trades at early January levels where at that time it caused major risk off event. Concerns of Chinese economy has been overshadowed by Brexit, however rising default in corporate bonds and asset-liability mismatch in many Chinese corporates are difficult to ignore.
After shocking US employment data released last month (39k actual vs 159k fcast & prior months revision downward), the US Fed will be hoping for a decent new jobs gain this Friday. Only a much better than expected figures can propel the US Fed to rate hike. Bond futures see a full 25 bps rate hike on 2018 year end.
Equity market reaction to Brexit has been very positive, with US indices retracing most of its losses and UK stock market in euphoria mode breaking year to date high. This has been supported with the belief that central banks will step in for further easing as it assess economic consequences from Brexit.
Brexit could be the start of global political uncertainty, with now Australia potentially in hung parliament, Austria re-running their presidential election. Other EU countries will be going to the polls in next 12 months and of-course US election this November.
