Australia's central bank on Wednesday opened the door to a possible rate cut as it acknowledged growing economic risks in a remarkable shift from its long-standing tightening bias that sent the local dollar sliding.
In early trade, the Aussie dollar was marginally lower at $0.7103, having lost 1.8 percent in the previous session, its largest percentage decline in more than a year.
"We have a clear trading range for the Aussie dollar. The shift in the RBA's stance will likely make the Aussie test the $0.70 level versus the dollar," added Michael McCarthy, chief markets strategist at CMC Markets.
· The yen was steady versus the greenback at 109.91. The dollar has gained around one percent versus the Japanese currency so far this month as global risk sentiment improved leading to a modest rally in global equities.
· The dollar index, a gauge of its value versus six major peers was steady at 96.35, hovering close to its two-week high in early Asian trade.
The dollar index has gained for three consecutive sessions, mainly thanks to a weaker euro, which constitutes around 58 percent of the index.
· The single currency was flat at $1.1364, having lost 0.45 percent of its value on Wednesday. The euro has lost around 1.3 percent over the last week as investors bet that the European Central Bank will keep monetary policy accommodative due to weaker-than-expected growth and low inflation in the common area.
· Elsewhere, sterling was marginally higher at $1.2930. The British pound has weakened by 1.3 percent in February due to Brexit woes. The United Kingdom is currently on course to leave the European Union on March 29 without a deal unless British Prime Minister Theresa May can convince the bloc to reopen the divorce agreement she reached in November and then sell it to skeptical British lawmakers.
The Bank of England is scheduled to meet later on Thursday and is widely expected to keep interest rates unchanged.
"The BoE won't even consider changing interest rates until the terms to leaving the EU become clear," said Kathy Lien, managing director of currency strategy at BK Asset Management.
· USDJPY: Prices May Continue to Fall
USDJPY: Retail trader data shows 51.6% of traders are net-long with the ratio of traders long to short at 1.07 to 1. The number of traders net-long is 1.6% lower than yesterday and 0.9% lower from last week, while the number of traders net-short is 2.1% lower than yesterday and 4.1% lower from last week.
USDJPY SUGGESTS A BEARISH TRADING BIAS
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDJPY-bearish contrarian trading bias.
· U.S. President Donald Trump said on Wednesday that the World Bank Group should be led by U.S. Treasury official David Malpass, a Trump loyalist and critic of multilateral institutions who has vowed to pursue “pro-growth” reforms at the development lender.
Trump’s nomination of Malpass, the Treasury Department’s top diplomat, is subject to a vote by the World Bank’s executive board and could draw challengers from some of its 188 other shareholding countries.
The nomination of Malpass signals that the Trump administration wants a firmer grip on the World Bank. He was an economic adviser to Trump’s 2016 election campaign.
· U.K. Prime Minister Theresa May is heading to Brussels on Thursday seeking changes to the Brexit deal with the European Union (EU) with just 50 days to go until the Brexit departure date.
May is due to meet with EU officials including European Commission President Jean-Claude Juncker, European Council President Donald Tusk and the European parliament's Antonio Tajani on Thursday.
· German industrial output unexpectedly fell in December for the fourth consecutive month, data showed on Thursday, sending another signal that growth in Europe’s biggest economy is weakening.
Data from the Federal Statistics Office showed industrial output was down by 0.4 percent, confounding a Reuters forecast for an increase of 0.7 percent.
Analysts said the fall makes it more likely that the economy contracted in the fourth quarter, which would translate into a recession after growth domestic product fell in the third quarter.
· Oil prices fell on Thursday after U.S. crude inventories rose and the country’s production held at record levels, but OPEC-led supply cuts and Washington’s sanctions against Venezuela supported markets.
U.S. West Texas Intermediate (WTI) crude futures were at $53.66 per barrel at 0744 GMT, down 35 cents, or 0.7 percent, from their last settlement.
International Brent crude oil futures fell 39 cents, or 0.6 percent, to $62.30 per barrel.
U.S. crude oil inventories climbed by 1.3 million barrels in the week that ended Feb. 1 to 447.21 million barrels, data from the Energy Information Administration (EIA) showed on Wednesday.
Meanwhile, average weekly U.S. crude oil production remained at the record 11.9 million barrels per day (bpd) it reached in late 2018. The United States is currently the world’s largest oil producer, ahead of traditional top suppliers Russia and Saudi Arabia.
· Crude Oil Prices at Risk if BOE, EU Forecasts Feed Growth Fears
Looking ahead, updated policy guidance from the Bank of England and the latest edition of European Commission economic forecasts are in focus. Both are likely to reflect expectations of a downshift in global growth. MPC rhetoric might add to the gloomy mood as officials worry aloud about a “no-deal” Brexit.
On balance, this bodes ill for market-wide sentiment trends. Another rout is likely to send crude oil lower along with most risky assets. A parallel drop in yields may pressure gold upward, but any advance might prove to be limited at best if haven flows continue to buoy the Greenback.
CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices paused to digest recent losses, but a bearish Evening Star candlestick pattern still hints a top may be taking shape. From here, a daily close below initial support in the 49.41-50.15 area opens the door to challenge the 42.05-55 zone anew. Alternatively, a reversal above the February 4 high at 55.75 exposes the next layer of resistance in the 57.96-59.05 region.
Reference: Reuters, CNBC, Daily FX
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