Australian dollar drops, ASX expected to recover after global sell-off
The Australian dollar fell sharply after traders digested yesterday’s worse-than-expected economic-growth figures.
Markets at 8:00am (AEDT):
- ASX SPI futures +0.2pc at 5,675, ASX 200 (Wednesday’s close) -0.8pc at 5,668
- AUD: 72.68 US cents, 57.08 British pence, 64.07 Euro cents, 82.29 Japanese yen, $NZ1.05
- US: (closed for national day of mourning for former President George HW Bush)
- Europe: FTSE 100 -1.4pc at 6,922, DAX -1.2pc at 11,200, CAC -1.4pc at 4,944, Euro Stoxx 50 -1.2pc at 3,150
- Commodities: Brent crude -0.6pc at $US61.70/barrel, spot gold -0.1pc at $US1,237.06/ounce, iron ore +0.3pc at $US67.38/tonne
It tumbled to 72.68 US cents, 57.08 British pence and 64.07 euro cents at 8:00am (AEDT) — down by about 1 per cent against the major currencies.
The nation’s gross domestic product (GDP) came in at 2.8 per cent, its slowest annual pace in two years and far below market expectations.
However, the local share market is expected to fare slightly better, according to ASX futures.
After tumbling by more than 1.5 per cent in the past couple of days, the Australian bourse is expected to rise 0.2 per cent at the open.
Retail and trade in focus
The Australian dollar’s movements will likely be affected by today’s economic figures.
The Bureau of Statistics will release its latest retail sales figures for October.
Reuters-polled economists are expecting a very small increase, up by just 0.2 per cent.
“We expect that department store sales remain soft and household goods sales growth is likely to have slowed, given lower housing turnover,” said Ray Attrill, NAB’s head of foreign exchange strategy.
Australia’s trade balance figures — which measure the difference in value between imported and exported goods — are also out today.
The consensus estimate from analysts is a $3.2 billion surplus.
“Solid growths in resource exports are likely to have more-than-offset a modest decline in imports,” Mr Attrill said.
“Port shipments data reveals a lift in coal and LNG exports in particular, and the volatile non-monetary gold component is expected to have bounced up.”
US worries spread to global markets
Meanwhile, it was a quiet night on global markets, with Wall Street closed for a national day of mourning for former president George HW Bush.
However, the previous day, US markets suffered their worst sell-off since October — the S&P 500 lost $US820 billion in value, while the Dow Jones plunged by almost 800 points.
The negative sentiment from US markets spread to European markets overnight.
The major indices — London’s FTSE (-1.4pc), Frankfurt’s DAX (-1.2pc) and Paris’ CAC (-1.4pc) — experienced steep falls.
One reason behind the continued selling is rising doubts about whether the United States and China can reach a deal within their 90-day “trade truce” period.
Another factor was the American recession fears, signalled by the US Treasury bond market.
Analysts have pointed specifically to the narrowing difference between short-term (two-year) interest rates, and longer term (five and 10-year) bond yields.
The long-term rates are supposed to be higher to reflect expectations of continued economic growth and the opportunity cost of parking money for long periods of time.
But the return on two-year bonds (2.8pc) has now surpassed the five-year rate (2.79pc), and is not far behind the 10-year yield (2.92pc).
A flattening or “inverted” yield curve — in which short-term rates are higher than long-term rates — can signal an economic slowdown.
Historically, this “inversion” trend occurred prior to the US recessions of 1990, 2001 and 2007, under the Bush Sr and Bush Jr presidencies.