Daily Market Update

Tight markets as plenty rides on U.S.- China talks

May 07, 2019

The U.S. Dollar remains in familiar ranges following negative flows in stock indexes across the globe based on the uncertainty surrounding China-U.S. trade talks.

Overview

Action is heaviest in oil markets as dramatic swings continue based on doubts about productivity in the OPEC countries who must now deal with Iran facing sanctions and Venezuela political turmoil.

Neither Canadian Dollar nor Mexican Peso has good vibes at the moment and this development in oil prices won’t help. Aussie seemed to be headed towards ugly territory, but the Reserve Bank of Australia surprised and stayed away from cutting rates. The dovish expectation was not met as RBA Chief Philip Lowe adhered to some of the Fed Chair Jerome Powell’s language in saying the slowdown in inflation is due to “transitory” factors.  Expect the buck to hold mostly tight until Friday unless there is news to share on the trade front.

 

What to Watch Today…

  • JOLTS 10AM

Complete Economic Calendar can be found here.

 

AUD

The Aussie did not go down as many thought since the Reserve Bank of Australia decided to keep policy and interest rates unchanged. While there was close to a 50.0% chance that a cut would occur and some economists guaranteed it, the bank took notes form the U.S. Federal Reserve and said some issues in the economy are just temporary.

Since things seem manageable, there is no need to further stimulate the economy, but Australia is not alone in facing a peculiar irony: economic productivity had a dramatic shift downward, with the pace of growth in Q4 2018 1.0% when the first half of the year had been around 4.0%; however, unemployment is low, there are jobs being created, and the government wants to build infrastructure. Chances of a cut happening next meeting, June 4th, are down to 22.5%. Chair Philip Lowe wants to closely watch labor growth and trade.

GBP

The Pound is down slightly as all eyes and ears are focused on what may come out of a meeting between Prime Minister Theresa May and main opposition Labour leader Jeremy Corbyn who could sign a deal to put to parliamentary vote. May decided to start entertaining a more friendly approach to her political rivals since the conservative Tories are split on whether she should even have her job right now.

The result of that meeting could lead to some possible scenarios: 1. The Labour party votes along with May and a deal is approved, pending EU final approval, the U.K. has an agreeable Brexit deal 2. The Labour Party shows that it is split also because its members would want to see a second referendum on whether to leave the EU. No deal for May, then we see attempt to delay Brexit’s deadline further to accommodate a popular vote.  Most politicians now seem to want to avoid a no-deal scenario so May is using last-resort diplomacy to leave her print and not quit, be later remembered as not capable of delivering.

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