SYDNEY: The Australian dollar touched a four-week high on Friday as the market scaled back bets on a near-term cut in local interest rates, while Chinese data showed some resilience in September activity even as third-quarter growth slowed.
The Aussie dollar was firm at $0.6835 after jumping jumped almost 1% on Thursday alone as a break of major resistance at $0.6810 sparked a wave of short-covering.
The New Zealand dollar followed to its highest in five weeks at $0.6376, climbing 0.9% overnight.
The rally began when Australian jobs data showed an unexpected dip in unemployment in September, which dimmed speculation the Reserve Bank of Australia (RBA) would cut interest rates again soon.
It got a further lift when RBA Governor Philip Lowe told a conference in Washington that lower rates were working to improve the economy and a move to negative rates was “extraordinarily unlikely”.
The futures market responded by paring back the probability of a November rate cut to just 14%, compared with 34% a week ago. The chance of an easing in December dropped to 52%, after rising above 80% last week.
The central bank has already cut rates three times this year to a record low of 0.75% and is fast running out of room to ease more.
“The September labour report is likely to be good enough for the RBA to hold back and not follow through with another interest rate cut in November,” said Peter Dragicevich, a market strategist at Suncorp.
“But given the still sluggish domestic growth backdrop, external risks, trend of lower global interest rates and excess capacity that remains in the labour market, it still looks like a matter of when, not if, the RBA provides more support.”
As a result, the market is almost fully priced for an easing to 0.5% by March next year.
For now, the diminished chance of near-term easing weighed on bond futures. The three-year bond contract eased another 1.5 ticks to 99.250, the lowest in more than a month and some way from the recent all-time top of 99.460.
The 10-year contract slipped 1 tick to 98.8850, away from its recent peak of 99.1550.
The Aussie was unfazed by a mixed bag of Chinese data that showed economic growth slowed to 6.0% in the third quarter, just missing forecasts of 6.1%.
Yet industrial output beat estimates with an increase of 5.8% in September, while retail sales growth picked up to an annual pace of 7.8%, offering hints that stimulus was supporting activity to some extent.
“The numbers could have been worse. If anything there was some fear it might drop below 6% but that didn’t happen,” said Mitul Kotecha, senior emerging markets strategist at TD Securities in Singapore.
“The industrial production numbers highlight that there is a bit of a glimmer of hope on the manufacturing side and some hope that trade progress will help further,” Kotecha added. – Reuters
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ZURICH: Food group Nestle plans to return up to 20 billion Swiss francs ($20.13 billion) to shareholders over the next two years and is making changes to its struggling waters business after organic sales growth dipped to 3.7% in the third quarter from 3.9% in the previous quarter.
Packaged food makers are branching out into new areas like plant-based meat alternatives or products made from all natural ingredients to boost growth in an otherwise sluggish market.
Nestle’s organic growth, which strips out currency swings and acquisitions, slowed in the third quarter as prices for its products fell slightly, the maker of KitKat chocolate bars, Maggi noodles and vegan burgers said in a statement on Thursday.
It did, however, confirm its outlook for organic sales growth of around 3.5% and an operating margin of 17.5% or above for the full year, pointing to strong momentum in the United States and its petcare business.
It said it had decided to distribute up to 20 billion francs to shareholders over the period 2020 to 2022, primarily in the form of share buybacks, but special dividends were also possible.
“Should any sizable acquisitions take place during this period, the amount of cash to be distributed to shareholders will be adjusted accordingly,” Nestle said.
In a separate statement, Nestle announced it would no longer manage its waters business, which posted weak organic growth of 0.5% for the nine-month period, as a global business. It will instead integrate it into its three geographical zones.
Maurizio Patarnello, head of the waters business, will leave the executive board at the end of this year.
Nestle appointed Sanjay Bahadur, head of acquisitions and business development, to lead a new group strategy and business development function that should help identify internal and external strategic growth opportunities. – Reuters
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