Central Bank surprise – ECB cuts rates

Australian Dollar:

In what was an eventful and volatile European session the Australian Dollar opens in familiar territory this morning buying 0.9344 US cents. Driven to overnight highs of 0.9392 on the back of the European Central Banks shock rate cut and carry plays the Aussie quickly corrected lower as expectations the US Federal Reserve will be force to raise their benchmark rate sooner than expected were bolstered by a string of stronger US data. A narrowing trade balance, expanding services sector and stable unemployment claims supported the recovering US economy and reduced the scope for AUD volatility. The Aussie has maintained its tightest monthly range in almost 10 years as investors seem happy to ride the carry trade and cash in on the higher AUD yields. Attention now turns to US non-farm payroll as the directional driver leading into the weekly close.

• We expect a range today between 0.9280 – 0.9400.

New Zealand Dollar:

The New Zealand Dollar opens this morning marginally lower against its US counterpart as strong data was offset by the European Central Banks stunning rate cut. The NZD rallied toward 0.8350 on carry plays as the ECB cut is benchmark rate from 0.15% to 0.05% before gains were quickly corrected on the back of surprisingly stronger US numbers. The Kiwi opens this morning buying 0.8298 and with little domestic data available direction into the weekend will come from the US non-farm payrolls with investors looking for a strong reading and strengthening labour market.

• We expect a range today of 0.8220 – 0.8350.

Great British Pound:

Sterling was driven lower yesterday as the Bank of England left its benchmark cash rate unchanged at 0.5%. Falling to seven month lows against its US counterpart the reversal in expectations has been extraordinary as another week of strong US data ads credence to calls the Fed will be the first to adjust interest rates. Having plummeted from highs above 1.7150 in July the Great British Pound has been one of the worst performing major currencies of the 3rd quarter. As expectations surrounding central bank policies continue to diverge sustained downward pressure is likely be maintained and we open this morning at 1.6321.  

• We expect a range today between 1.7420 – 1.7620.

Majors:

The Euro plummeted against all 31 of its major currency counterparts Thursday after the European Central Bank stunned markets by cutting its bench mark cash rate from 0.15% to 0.05%, a new record low. ECB President Mario Draghi then heaped further downward pressure on the 18 nation bloc unit confirming the Central Bank will look to buy “a broad portfolio” of asset back securities starting next month validating claims that some form of quantitative easing will be adopted. Falling to 14 month lows the Euro opens this morning at 1.2939.

The Yen also struggled to hold off an advancing USD as the Bank of Japan maintained is current stimulus plan. A string of positive US data headlined by an expanding services sector and expectations non-farm payroll numbers released today will add further support to calls for a Fed rate hike helped to buoy the USD rally and bolster Greenback strength.

Data releases

• AUD: AIG Construction Index
• NZD: No Data
• JPY: BOJ Monthly Report and Leading Indicator
• GBP: Halifax HPI and Consumer Inflation Expectations
• EUR: Revised GDP and German Industrial Production m/m
• USD: Non-Farm Employment Change, Unemployment Rate and Average Hourly Earnings