After a series of swings and roundabouts, it was a largely uneventful session overnight with markets failing to derive any inspiration from the greatly anticipated FOMC minutes for June. While Fed members acknowledged the downside risks to the U.S economy emanating from Europe, the minutes failed to provide a clearer understanding on the likelihood of further economic stimulus. As expected, some members expressed a willingness to keep the door open should further downside risks materialise. The period to follow saw an immediate reversal across risk currencies with the U.S the prime beneficiary, but losses were quickly unwound in the latter part of U.S trade despite general disappointment over the Fed’s lack of QE clarity.
The Australian dollar was able to hold on to moderate gains throughout the session, but stalled just above the 200 Day Moving Average hitting highs of 102.83 US cents. Nevertheless, the local unit continued to outpace the Euro with the EURAUD pair falling to new euro-era lows of 1.1934. It was another day of milestones for the Euro which hit new euro-lows against the Kiwi and fresh multi-year lows against the greenback and sterling. U.S stocks ended mixed with the S&P500 finishing flat on the day while the DOW closed 0.38 percent lower.
Meanwhile, Spanish Prime Minister Mariano Rajoy unveiled his latest austerity plan with EUR65 billion expected to be cut from the budget deficit in less than 3-years, in an effort to meet conditional targets in exchange for financial assistance. Still, with many hurdles still to jump, the balance of risk continues to err on the side of caution at the expense of the Euro. Europe’s economic plight suffered another blow on Tuesday after the German Constitutional court further delaying the ratification of Europe’s permanent bailout fund, the European Stability Mechanism. In what could be lengthy delays, opponents of the ESM are attempting to foil the permanent rescue fund, while ironically European leaders are busily putting the fund to work in an effort to shore-up confidence in the region.
The day ahead will see local employment data take centre stage, which is expected to see no jobs growth in June from a previous rise of 38,900, with official unemployment rate expected to tick up from 5.1 to 5.2 percent. Earlier this week, ANZ monthly jobs report for June reflected weaker labour conditions with the index falling 1.2 percent from a previous slide of 2.6 percent – perhaps an important precursor ahead of today’s release . The flow on effect from persistent European drama’s may also suggest Australian employers are less likely to take on new staff, given the outlook from both sides of the Atlantic remains highly uncertain.
The Bank of Japan will also wrap up their two-day policy meeting today which is expected to see no change to the official cash rate. For now, it appears the BoJ are using the premise of further asset purchases as an effective policy tool, which suggests the central bank may hold off extending the asset purchase program at today’s announcement.