Market Drivers November 25, 2014

RBA Lowe – We have scope for further cuts – sends AUD/USD to 4 year lows
MPC Parliamentary testimony cautious
Nikkei 0.29% Europe .82%
Oil $76/bbl<
Gold $1202/oz.

Europe and Asia:
GBP BBA Mortgage Approvals 37.1K vs. 38.5K

North America:
CAD Retail Sales 08:30

USD GDP 08:30

USD Consumer Confidence 10:00

Its been a lackluster night of trade in the currency market with most majors stuck out narrow ranges except for the commodity currencies which continued to weaken with Aussie hitting four year lows. The dip in the Aussie was caused by further dovish rhetoric from the RBA after Assistant Governor Lowe noted that the central bank can still lower rates if there s a need to do so.

Governor Lowe’s attempts to jawbone the currency lower reflects the long standing desire of the central bank to bring the exchange rate below the 8500 mark in order to improve the country’s terms of trade, Last week’s surprise PBOC rate cut was initially viewed as positive for the currency but upon further reflection may signal a significant slowdown in the Chinese economy which would bode very badly for Australia. Yesterday’s announcement by BHP Billiton that it plans to reduce capex by another 13B in 2015 is yet one more indication of contraction in the resource sector that could weigh on the Australian economy as a whole.

Taken against these developments, Mr. Lowe’s comments could be a hint that the RBA is indeed considering further easing which would be a major surprise to the market given the fact that most participants expect the policy to remain stationary for the foreseeable future. However, any additional weakness in Chinese data is sure to increase bearish speculation on the Aussie and the pair could break 8500 on the next wave of selling.

The Aussie slipped to a low of 8522 but held above the key 8500 level in Asian and early European trade continuing to consolidate. However any upside in US data today could threaten that barrier once again.

In North America today the market will get a glimpse at the 2nd revision of GDP data as well as US Consumer Confidence numbers. The anticipation is that the GDP data will be revised lower to 3.3% from 3.5% initially reported. However, if the numbers maintain their original estimate the dollar could get another boost as it will add to the evidence that US economy continues to vastly outperform the rest of the G-10 universe.

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