Losing on the swings
On Tuesday morning the Australian dollar powered into the lead. Investors interpreted the Reserve Bank of Australia's policy statement to be moderately hawkish, and dismissed the possibility of a rate cut from the RBA. This morning the RBA governor disabused them of that notion, using a speech to point out that rates can go down as well as up. The Aussie fell.
After a preamble about the global economy and domestic house prices ("We have moved almost seamlessly from worrying that prices were going up, to worrying that they are going down"), Philip Lowe moved on to monetary policy. He explained that where, previously, it was more likely that the next move for interest rates would be up, "today the probabilities appear to be more evenly balanced".
By saying that, the governor put a rate cut back on the table and investors reacted like startled rabbits. The Aussie dropped an almost immediate cent and a half and drifted on lower for a daily loss of a cent and two thirds. Today's fall exceeded Tuesday's gain, leaving a net loss of half a cent. The NZ dollar suffered collateral damage, losing a third of a cent this morning.
Losing on the roundabouts
The Aussie prevented the pound from adding to its wooden spoon collection. Sterling dropped an average of 0.3%, losing one yen, four fifths of a US cent, two thirds of a Swiss cent and a third of a euro cent. Its problems stemmed from weakness in the UK services sector.
The services purchasing managers' index came in at 50.1, only a tick above the breakeven level. The report had no redeeming features, with new orders and staffing levels declining. It did not come as a total shock to learn that "survey respondents overwhelmingly linked the slowdown in business activity growth to heightened political uncertainty".
The US president's State of the Union speech this morning contained a mix of the encouraging ("an economic miracle is taking place in the United States") and the alarming ("If I had not been elected president we would… be in a major war with North Korea"). It was leavened by calls for national unity, although critics suggested Trump was trying to rally support around his own policies. There was no coherent reaction from the US dollar: it is an average of 0.3% higher on the day but most of those gains had come earlier on Tuesday.
Today's agenda is not exactly overloaded with juicy economic statistics. Europe's contribution is already done and dusted, with German factory orders falling by 7.0% in 2018, 1.6 percentage points of that decline coming in December alone. The quarterly NZ jobs numbers come out tonight.
Analysts reckon the number of workers in New Zealand went up by 0.3% in Q4, allowing unemployment to rise from 3.9% to 4.1%. The participation rate is supposed to be roughly steady at 71.0%. Canada's Ivey PMI comes out after lunch, together with building permits and a technical speech by Bank of Canada deputy governor Timothy Lane.
The Brexit narrative has been subdued in the last few days, as the prime minister travels Europe in search of "alternative arrangements" for the Irish Backstop. It cannot be long before investors begin to ask awkward questions again.