Australia’s central bank flags lower rates in jobs hunt

ADELAIDE: Australia’s top central banker on Thursday said it was not “unrealistic” to expect a further reduction in interest rates given ample slack in the labour market, and called on the government for action on fiscal stimulus.

Reserve Bank of Australia (RBA) Governor Philip Lowe said it was “unrealistic” to think that a single quarter-point cut in rates would be enough on its own to speed up economic growth. The RBA cut rates to a record low of 1.25% earlier this month.

“Given this, the possibility of lower interest rates remains on the table,” Lowe told an economics conference in Adelaide.

“It is not unrealistic to expect a further reduction in the cash rate as the Board seeks to wind back spare capacity in the economy and deliver inflation outcomes in line with the medium-term target.”

The RBA is hardly alone in easing, with both the U.S. Federal Reserve and the European Central Bank this week reversing course and opening the door to new stimulus.

Futures markets imply around a 58% chance of an RBA rate cut at its next meeting on July 2, while a move to 1% by August is considered a dead certainty. A further move to 0.75% is tipped by year-end.

Lowe was blunt in his assessment of the need for stimulus.

“The most recent data – including the GDP and labour market data – do not suggest we are making any inroads into the economy’s spare capacity,” he said.

Annual growth in the economy slowed to a decade low of 1.8% in the March quarter while the jobless rate has ticked up to 5.2% in recent months. Inflation and wages growth have also been more subdued than the bank previously expected.

Lowe said a more flexible labour market meant the economy could sustain a jobless rate down around 4.5%.

“Most indicators suggest that there is still a fair degree of spare capacity in the economy,” he said. “It is both possible and desirable to reduce that spare capacity.”

With this in mind, Lowe said it was important to recognise that monetary policy alone could not do all the work and called for more action on the fiscal front, including spending on infrastructure.

Structural policies that support firms expanding, investing, innovating and employing people would also be welcome.

So far, the newly re-elected coalition government of Prime Minister Scott Morrison has played down the need for fiscal stimulus and remains committed to returning the budget to surplus in 2019/20.

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Ringgit to strengthen below 4.15 against us dollar next week

KUALA LUMPUR: The ringgit is likely to trade below the 4.15 level against the US dollar next week, tracking other Asian currencies in benefiting from the weaker greenback amid expectations of an interest rate cut by the US Federal Reserve (Fed).

FXTM market analyst Han Tan said further weakness in the US dollar due to the anticipation of a Fed rate reduction could alleviate the pressure on Asian currencies, including the ringgit, in the week ahead, hence allowing the local note to trade below the 4.15 level against the greenback.

“Should the US economic indicators in the week ahead point to soft patches in the world’s largest economy, that could fuel expectations for a Fed rate cut over the coming months while opening up more downside for the greenback,“ he told Bernama.

The US will release its Consumer Price Index (CPI) data for May 2019 on June 12 and its weekly initial jobless claims report on June 13, while China will also announce its trade data for May 2019 on June 10, and its May 2019 CPI data on June 12.

According to Tan, China’s data releases in the coming days could also buffer the performances of regional currencies, in the event that China’s economic resilience outshone the heightened trade tensions with the US.

“Market risk sentiment is expected to remain impeded by the already heightened barriers to global trade, which threaten to further dampen the world’s economic outlook for 2019 and beyond.

“Therefore, for the week ahead, the ringgit’s exposure to external factors will remain in focus,“ he added.

Meanwhile, Vanguard Markets managing partner Steve Innes said although the ringgit had been supported by the markets which aggressively priced in Fed rate cuts for the week just ended, the local unit would still be the biggest casualty of the escalating US-China trade tension given Malaysia’s strong trade ties with China.

“With US President Donald Trump threatening to implement more tariffs, the US dollar-ringgit floor should remain in check despite an apparent dovish shift from the Fed,“ he said.

For the holiday-shortened week, the ringgit was traded higher versus the greenback, mainly attributable to the surprising trade data which saw April’s exports rose 1.1% year-on-year to RM85.2 billion, coupled with the weakening greenback.

The market was closed on June 5-6 for the Hari Raya Aidilfitri holidays.

On a Friday-to-Friday basis, the ringgit strengthened to 4.1570/1620 against the US dollar from 4.1890/1920 previously.

It traded mixed against other major currencies.

The local unit fared slightly better against the Singapore dollar at 3.0396/0444 from 3.0399/0432 at last Friday’s close, and advanced to 3.8275/8331 from 3.8512/8544 versus the yen.

However, vis-a-vis the pound, it declined to 5.2844/2924 from 5.2693/2748, and depreciated against the euro to 4.6787/6860 from 4.6703/6741 previously. — Bernama

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Dollar holds up near 2-year peak on trade-war, growth worries

TOKYO: The dollar held up against its key rivals on Thursday after fears of an escalation in the Sino-U.S. trade standoff forced investors to take shelter in safe-haven assets, including government bonds.

As the dispute between the world’s two biggest economies showed no signs of abating, worries that global growth will be hurt have rippled through financial markets in recent sessions, with riskier assets in particular taking the brunt of selling.

Against a basket of six major currencies, the dollar was basically flat at 98.128, hovering within reach of a two-year high of 98.371 brushed a week ago. The index is up more than 2% for the year.

“The outlook for global growth, and any drag from the festering trade dispute, remain key issues for markets,” said Michael McCarthy, Sydney-based chief market strategist at CMC Markets.

“The data over the next twenty-four hours has potential to either confirm or dispel the gloom,” he wrote in a note.

Offering the latest sign the standoff between Washington and Beijing is far from ending, Chinese Vice Foreign Minister Zhang Hanhui said on Thursday that provoking trade disputes is “naked economic terrorism”, ramping up the rhetoric against the United States.

Chinese newspapers had warned the day before that Beijing could use rare earth elements to strike back at the United States after U.S. President Donald Trump said he was “not yet ready” to make a deal with Beijing over trade.

Investor focus is now on U.S. data for an indication about the state of the world’s top economy, with market participants awaiting the second estimate of first-quarter gross domestic product growth figures and U.S. weekly jobless claims.

“As the United States isn’t likely to fall into a recession anytime soon, there’s a likelihood that risk sentiment may improve based on the economy’s strength,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

The dollar held mostly steady even after benchmark 10-year U.S. Treasury yields hit as low as 2.210% overnight, their lowest since the middle of September 2017.

The greenback’s status as the world’s reserve currency tends to attract safe haven bids in times of market turmoil and political tensions. The U.S. 10-year yield was last at 2.267%.

The dollar was also underpinned by weakness in the euro on fresh signs of political tensions between Italy and the European Union.

The European Commission wrote on Wednesday to the Italian government asking it to explain a deterioration in the country’s public finances, a move that sets the stage for a possible legal clash with the eurosceptic coalition in Rome.

The single currency on Thursday tacked on almost a tenth of a percent to $1.1138, recovering somewhat after giving up 0.8% in three straight losing sessions.

The Australian dollar added 0.15% to $0.6926.

Elsewhere in the foreign exchange market, the dollar was steady at 109.59 yen, about 0.5% above a more than three-month low of 109.02 yen touched on May 13.

Analysts said the yen, another safe-haven asset backed by Japan’s status as the world’s biggest creditor nation, remained relatively weak due to domestic investors’ demand for dollars.

“As there’s persistent yen-selling and dollar-buying from Japanese investors when the rate approaches the 109.10 yen per dollar level, it’s not easy for the yen to rise above the 109 level,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

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