Market Update – 31st May 2019 – RBA Meeting Next Tuesday Is Biggest In 3 Years

Please note that the commentary below is factual information provided to a group of readers as a web blog, and where an opinion is expressed by the author, it is GENERAL ADVICE only.

RBA Decision Next Tuesday:

This won’t be a long Market Update as the Aussie Dollar has simply done bugger all over the last 24 hours. In fact we are 10 points or nearer to the indicative wholesale rates I published yesterday morning. Trade tensions are still the number one story driving equity markets and commodities prices, while interest rates specifically the RBA is the number one story driving the AUD. The AUD will probably remain anchored to the current levels vs the majors until Tuesday afternoon’s official RBA Cash Rate Decision, however the fireworks should kick off around a 1.30pm, or about an hour before the decision. Expectations for the most part is that we’ll see a 25 basis point rate cut, however there is a contingent of economists who think they’ll hold fire until at least July’s meeting.

What Will Happen:

To make it very clear what could happen on Tuesday afternoon:

  • RBA Cuts interest rates by 25 basis points; the AUD will likely slide, but not too savagely as it’s priced into the market to some degree
  • RBA Holds interest rates steady at 1.5%; the AUD will likely rise, but this is dependent on their accompanying comments. More bullish comments will see a sharp rise, however bearish comments and a confirmation of a cut will see the AUD decline in a similar scenario to the cut above.

So what can Importers do? 

If you’re an importer and you import on fine margins in a competitive industry then the best strategy to reduce your risk to zero is to hedge any upcoming exposures as far as 3-6 months out with a Forward Contract. A Forward Contract as I’ve discussed before allows an importer or exporter to hedge their future exposures (upcoming payments) at today’s rates. Meaning if you hedge at 0.6800 today for 6 months, in 6 months you’re trading at 0.6800 instead of potentially 0.6500 or lower.

AUD EXCHANGE RATES:

AUD/USD – 0.6880

AUD/GBP – 0.5448

AUD/EUR – 0.6176

AUD/NZD – 1.0588

AUD/JPY – 75.425

OTHER MARKETS:

All Ords (XAO) – 6,489

Gold – A$1,864/oz

Silver –  A$21.01/oz

WTI – US$56.56/barrel

DATA RELEASES TODAY:

CNY – Manufacturing PMI at 11.00am

AUD – Prelim GDP q/q at 10.30pm

Sign up for a Compass account today and access some of the most competitive rates in the business and arguably the best service.

 

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Patrick Downes

Senior Corporate FX Dealer

Phone Patrick – 0431 278 632 

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All references to prices, amounts and currency are in Australian dollars unless otherwise noted.
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