The Aussie exchange rate is today likely to be closely correlated with the RBAs rate decision at 2:30pm. With the Aussie economy still running at two-speeds, the booming mining sector and the flailing everywhere else, further cuts are expected. Mean estimates are for a 25 basis point cut with some more bearish economists/traders tipping as much as a 50 basis point cut. The Aussie dollar is in for a particularly choppy day of trade with interest also in what happens with equities should the RBA cut by the full half a percent. In pure economic theory, a cut of 50 basis point should see a solid rally in equities as a result of cheaper funding.
Overnight we saw the spotlight again on Spain and their ensuing banking crisis with comments coming from Banco Santander SA Chariman Emilio Botin who noted that as little as 40 billion EUROs could end the Spanish banking crisis. Juan Carlos Ureta, chairman of Renta 4 Banco SA also chimed in noting that “there is the risk of a possible stigma…it’s only some institutions that are in difficulties while the industry as a whole is healthy.” While I like the positive thinking, it is also clear that these men have an incentive to be positive in an attempt to lower the every increasing yield on Spanish 10 year bonds. European equities as a whole were mixed. The DAX and FTSE ended trade down 1%, while the Stoxx 50 and French CAC finished higher. EUR/USD has continued its winning streak to four days with the exchange rate trading just above 1.2520 today.
U.S markets were choppy ending flat with the NASDAQ performing the best up 0.4%. There was little data released other than some second tier Factory orders which declined 0.6%. Facebook (FB) finished trade at new fresh lows and continues what has been one of the worst IPOs in recent memory. The stock is trading just below US$27 a share, down from the IPO price of US$38.
As I mentioned at the beginning the event risk today is most certainly the RBA rate decision at 2:30pm. Expect foreign exchange markets, particularly AUD/USD to move wildly immediately before and following the announcement. Later tonight we have U.S non-manufacturing PMI as well as G7 meetings, followed by Aussie quarterly GDP tomorrow morning.