Markets have been in risk-on mode – Westpac

According to analysts at Westpac, financial markets have been in “risk-on” mode of late with optimism around global economic and political dynamics.

Key Quotes

“Central banks have hit the “pause” button as we approach the end of the year. Additional stimulus has already been deployed, with each of the RBA, the RBNZ and the US FOMC having lowered rates by 75bps so far in 2019.Policy makers are now monitoring developments to assess how economies respond.”

“We have pushed back the timing of our next US FOMC cut from December to the March quarter 2020, but we still see a further three rate cuts. We have also pushed back the timing of the RBNZ cut from November to February. For the RBA, we continue to expect a February rate cut, to a low of 0.50% – notwithstanding market pricing wavering on this. The economic outlook, globally and domestically, will continue to be challenged by structural headwinds, including weak productivity and a lack of investment.”

“Global sentiment has picked up as tail risks around Brexit and the US-China trade and technology war receded. Nevertheless, both issues remain in flux. The UK goes to the polls on December 12 and trade negotiations are fluid as the two nations negotiate a phase one deal. If a deal can be struck, it might see some rolling back of tariffs.”

“Against this backdrop, the AUD has rallied through USD0.69. We remain sceptical that positive sentiment will be sustained. A trade deal may yet prove elusive and the US Presidential election in 2020 will be a key source of uncertainty. We continue to expect the AUD to move lower in the first half of 2020, to USD0.66, a move supported by a downtrend in key commodity prices.”