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Aussie Weakens Further After RBA Holds Steady, Remarks On Wages

2/6/2018, 11:52:16 AMTrading Strategies
Aussie Weakens Further After RBA Holds Steady, Remarks On Wages

The Aussie weakened further after the central bank review on rates held steady as expected and cautioned on wages after a market rout overnight in the US that saw the S&P 500 down more than 4% and the dollar index post a gain.

AUD/USD fell 0.19% to 7862, while USD/JPY changed hands at 108.73. EUR/USD traded at 1.2374. up 0.05% and GBP/USD at 1.3962, up 0.03%.

The Reserve Bank of Australia released its February rate review and held steady at a record low 1.50% for the cash rate as expected. "Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual," the statement said.

"Notwithstanding the improving labour market, wage growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wage growth over time."

Earlier, Australia reported the trade balance at a surprise deficit of A$1.358 billion, compared with an A$250 million surplus seen for December and retail sales fell 0.5%, compared with a 0.2% increase seen on month in December and posted a 0.9% rise, compared with a 0.8% gain expected on quarter.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, eased 0.11% to 89.47.

The Dow Jones Industrial Average closed lower at 24345.68. The S&P 500 closed 4.10% lower, while the Nasdaq Composite closed at 6967.53, down 3.78%. The Dow Jones tumbled as much as 1,600 points to its lowest since Nov. 28.

Overnight, the dollar rose against a basket of major currencies as investors cheered bullish economic data pointing to underlying strength in the US economy. ISM nonmanufacturing data for January showed an uptick to 59.9, beating expectations of 56.5.

The services sector is critical component of the US economy, accounting for roughly 80% of U.S. private-sector gross domestic product (GDP).

Analysts said the strong ISM reading was indicative of strong economic activity, which could strengthen further should tax-reform measures lead to a solid rise in consumption.

Also supporting the dollar was a slump in the pound following UK purchasing manufacturing index data that fell short of expectations. While the euro moved off lowed against the greenback following comments from European Central Bank governor Mario Draghi who confirmed the euro area economy was expanding and inflation remained on track to meet the central bank's target of close to 2%.

The loonie came under pressure following reports that North American Free Trade (NAFTA) negotiations turned sour after reaching an impasse over dairy trade.