Australia dlr cheered by prospect of policy action in China, EU

19 Aug 2019 / 11:15 H.

SYDNEY: The Australian dollar found a sliver of support on Monday as the prospect of stimulus in China and Europe soothed risk sentiment, though the Sino-U.S. trade dispute remained a nagging worry.

The Aussie was idling at $0.6780, corralled between support around $0.6735 and stiff resistance at $0.6822.

The kiwi dollar slipped to $0.6411, after snapping support at $0.6420 and threatened to revisit the recent trough of $0.6378.

China's central bank on Saturday unveiled a key interest rate reform to help steer borrowing costs lower for companies and support the economy.

Also helping sentiment was growing speculation about government stimulus in Europe.

Germany has the fiscal strength to counter any future economic crisis "with full force", Finance Minister Olaf Scholz said on Sunday, suggesting Berlin could make available up to 50 billion euros ($55 billion) of extra spending.

At home, minutes of the Reserve Bank of Australia's (RBA) August policy meeting are due on Tuesday and should reiterate that rates could be cut again if needed to lower unemployment and get inflation moving.

Futures imply around a 76% chance of another quarter-point cut to 0.75% in October, though the odds did widen a little last week when jobs data proved surprisingly robust.

An easing is fully priced for November, with another pencilled in by March.

Analysts suspect the RBA will be very reluctant to cut below 0.5% given the pressure that would put on profits and lending in the domestic banking system.

Policy makers have recently said they would consider unconventional easing if required, but doubt it will come to that.

RBA Governor Philip Lowe speaks at the Jackson Hole central bank conference on Saturday and will likely have more to say on the policy outlook.

"We see below-trend growth and below-target inflation and a central bank which is running out of patience, and increasingly mindful of elevated global risks and policy easing by other central banks, which is blunting the currency-lowering impacts from its own easing," said Nomura economist Andrew Ticehurst.

He is tipping cuts in November and February, and puts the chance of unconventional policy as high as 40%.

"We still see further downside risk for AUD too, incorporating our cautious house views around global growth and trade tensions."

Across the Tasman, the Reserve Bank of New Zealand (RBNZ) stunned market this month by cutting rates by 50 basis points to 1% and even touting the idea of taking them negative.

Futures are priced for a reduction to 0.75% by February, with 0.5% implied by mid-year.

All the chatter on stimulus saw bonds lose just a little of their huge recent gains. The three-year bond contract eased 2 ticks to 99.325, while the 10-year contract lost 4 ticks to 99.0750. - Reuters

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