- The U.S. employment report showed hiring was steady last month.
- Australia’s central bank signaled that further rate cuts could be needed.
- Germany industrial orders posted an unexpected fall of 0.4% in June, the second fall in three months due to weaker foreign demand.
- UK lender Halifax reported a 1% fall in house prices in July, reversing a similar gain in June, but still 8.4% year-over-year.
Governments have never had it so good, or rather so cheap! With central banks still cutting rates and buying government debt, the cost of borrowing for ten years continues to fall to fresh record levels for the world’s major economies. In some cases, it is negative, meaning they are paid to borrow money.
The Dollar has turned positive for the week against the majority of its counterparts following the stronger than expected employment report. July saw 255k jobs added after 292k were added in June. Average earnings rose at a slightly faster than expected pace. July’s jobs number is likely to reignite some expectations that the Federal Reserve will raise rates this year, but that bar remains high amid weak GDP growth and soft inflation.
Despite a midweek rally the Pound closed down on the week despite a midweek following the Bank of England’s 25bps rate cut and “sledgehammer” policy announcement, and the prospect of further rate cuts is expected to keep the Pound under pressure. Concerns over what will happen to house prices have not gone away and are seen as key to how much consumer spending will be impacted by Brexit. Following Thursday’s rate cut and Q.E. announcement, Mark Carney said, “people should not worry about the supply of credit, this is not after the financial crisis, this isn’t during the euro crisis – this is a modern financial sector that is working.”
The Euro is marginally weaker again this week as German economic data disappoints again, signalling slowing growth in the bloc’s largest economy. It is lacking any real direction and continues to trade within a range of 1.0950-1.1250 against the Dollar.
The Loonie is flat against its U.S. counterparts as oil prices stabilize around the $40 mark. Friday brought some key data points including the employment report which missed expectations printing at -31K against a +10k survey, weakening CAD against the USD.
The RBA held rates at 1.5% this week as expected and the Aussie Dollar is marginally higher this week despite the RBA’s outlook on inflation. They stated that further rate cuts could be needed as “inflation is likely to remain below 2 percent over most of the forecast period (to end-2018).” Amid central bank easing that supports risk assets, we expect the high yielding Aussie to remain strong.