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Market Update
The Australian dollar is under pressure against most major currencies on Tuesday after the Reserve Bank of Australia decided to purchase an additional $100 billion of bonds during the February monetary policy meeting.
Australia’s main index, the ASX 200, has surged by around +1.50% after the announcement that the Reserve Bank of Australia expanded its QE programme. The central bank noted that the additional purchases will be at a rate of $5 billion a week, and that the new QE was needed to ensure a continuation of monetary support from the RBA.
Other highlights of the meeting include the central banks current projections of the interest rate, which they noted that is likely to remain on-hold until 2024, and that the Australian dollar has appreciated this year and has the reached the upper end of the years range.
In reality, the Australian dollar currency probably sold-off today over the additional QE, and also the central banks mention of currency appreciation, and the downplaying of the central bank’s inflation expectations.
Speaking of central bank’s, the People’s Bank of China injected liquidity into the Chinese banking sector again today to ease the interbank lending rate, following last Friday’s major ramp up in borrowing costs. Market participants are expecting the PBOC to continue injecting liquidity over the Lunar New Year holiday.
The overall risk tone of the market is also firmer after Sino-US dialogue look to be friendlier after China asked for relations between the world’s first and second-largest economies to be “back on a predictable and constructive track”.
Silver is notably lower this morning following the announcement that the CME are going to be rising margin requirements by eighteen percent. The news is being attributed to the price of the shiny metal moving under $28.00.
HSBC has also put out a note this morning noting they expect more retail traders to exit the market as volatility causes the price of silver to move lower. HSBC are expecting a notable short squeeze on “new entrants” to the silver market in the near-term.
The US dollar currency and bonds are also rising this morning on news that the US vaccine rollout is back-on-track, and COVID-19 stimulus package talks have got-off to a strong start between Democrats and Republicans.
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EU Q4 GDP data headlines the economic docket in Europe today, with most economists predicting that the eurozone economy contracted by around-1.2 percent during the fourth fiscal quarter. Markets are already expecting the negative number, so no big market reaction is expected.
Aside from the EU Q4 GDP release, top-tier macroeconomic data points are in short supply for the rest of the day. Australian Q4 employment and unemployment figures are set to be the big market movers and are scheduled to be released towards the end of the US session.
In terms of trades to watch, silver and the US dollar index are very much in focus. The US dollar index is on the verge of a major breakout against a basket of top currencies, watch out for volatility to ramp up if the greenback starts to breakout. Also, silver could come under heavy pressure if the $27.00 support level is broken.
