Aussie dollar nosedives, world stocks stall
Australian central bank joins US Federal Reserve in signalling easing of rate hikes
LONDON The Australian dollar nosedived yesterday after its central bank opened the door to a possible rate cut, in yet another indication that the global economic slowdown is persuading policymakers to go easy on rate hikes.
World stocks, too, stalled just off two-month highs, undermined by growth worries as well as US President Donald Trump's combative State of the Union address, in which he unveiled no new policy initiatives.
European shares traded marginally in the black and equity futures signalled a flat to weaker open on Wall Street.
Australia's central bank is only the latest to signal policy easing in the face of economic headwinds - the US Federal Reserve has all but abandoned plans for further rate hikes, while the European Central Bank also sounded less certain that it will start tightening policy later this year.
The U-turn pushed the Australian dollar 1.5 per cent lower, putting it on track for its biggest daily drop in a year.
"Germany is on the cusp of recession, Italy is in recession, Japan is on the cusp, and the Chinese economy is seeing the lowest growth in three decades. The Fed had a look at the picture and said the world is slowing, it is maybe appropriate to pause," said Mr Rhys Petheram, a fund manager in the multi-asset team at Jupiter Asset Management. "I want to be more defensive in my allocation to risk."
Wall Street finished strong on Tuesday and is now some 16 per cent off December lows but sentiment was knocked by Mr Trump's failure in his annual speech to unveil new infrastructure plans.
He also raised the possibility of another government shutdown should financing not be forthcoming for a US-Mexico border wall.
Futures indicated a weaker open on US stocks with the S&P and Nasdaq both down 0.1 per cent.
European stocks meanwhile were undermined by the latest batch of earnings, which further underscored the weak local economy and the drag on companies from slower global trade.
Germany's DAX index lost 0.5 per cent.
On the Brexit front, sterling looked fragile at around US$1.2951 after losing nearly 0.7 per cent on Tuesday when weak service sector data underscored damage to the economy from Brexit uncertainty.