The value of the Aussie dollar could dominate markets this week after it hit its lowest close of the year so far on Saturday morning at just over 77 US cents, as forex and other markets adjust to what looks like an inevitable lift in interest rates by the US Federal Reserve this week.
The Fed’s key rate will rise to 1.50% to 1.75%, which will be more than the Reserve Bank’s cash rate of 1.50%.
US 10 year bond yields rose slightly on Friday but still saw the biggest weekly fall so far this year, while the two year yield rose sharply to its highest level since August 2008.
The US Dollar Index was up less than 0.1% at 90.22, for a weekly of just over 0.1% but the Aussie dollar lost more than one US cent to finish the week around $US77.13 against the previous Friday’s close around 78.49 US cents.
Most commodities eased, especially iron ore which ended the week under $US70 a tonne for the first time this year.
But oil prices rose on Friday despite continuing fears about rising US production (see separate story).
Friday saw Eurozone shares up 0.3% on Friday while the US S&P 500 added 0.2% helped by mostly strong US economic data.
But over the week it was a different story with US shares down 1.2%, Eurozone shares were flat, Japanese shares up 1% and Chinese shares down 1.3%.
Australian shares lost 0.2% not helped by the soft US lead but with the start of the Banking Royal Commission and the Labor Party’s policy to cut back access to franking credits.
Wesfarmers’ shares rose 7% or $2.88 on Friday after its Coles spin off news, to close at $43.80. Wesfarmers says it will keep 80%, but is open to a buyer who wants the lot – which would be a $20 billion plus transaction in the depressed retail sector.
Newcrest Mining shares lost 8.6% or $1.86 to $19.73 as it became clear the impact of a tailing dam wall breach at its Cadia mining operations in central NSW will hit output of gold, copper, revenue and profits, and probably the final dividend.
The start of the banking royal commission hit the shares of the big four – ANZ shares lost 1.4% to $28.03, CBA shares slipped 2% to $75.34, the NAB lost 2.6% to $29.51 and Westpac shares were down 1.9% at $29.52. Those losses accounted for the week’s slide on the ASX.
Meanwhile US sharemarkets enjoyed a modest rise on Friday but that was not enough to offset earlier losses.
Worries over the potential for global trade tensions and turmoil surrounding the Trump administration kept a lid on the upside while the market accepts there will be a rate rise this week from the Fed, but want an idea of how many more might happen this year – two or three.
The Dow rose 72.85 points, or 0.3%, to close at 24,946.51. The S&P 500 edged up 4.68 points, or 0.2%, to end at 2,752.01. The Nasdaq Composite rose 0.25 point higher at 7,481.99, a gain of 0.2%.
For the week, the Dow fell 1.5%, the S&P lost 1.2%, and the Nasdaq declined 1%.
The yield on US Treasury bonds rose 2.4 basis points to 2.848% on Friday, cutting the week’s fall to 4.6 basis points, the largest five-day drop since December 29 last year (according to FactSet data).
Yields on 30-year bond rate rose 2.1 basis points to 3.081%, trimming the week’s drop to 7.8 basis points, which was also its steepest five-day fall since December 29.
But the yield on the 2 year bond (the most sensitive to expectations for central-bank rate moves), rose 0.8 basis point to 2.295%, the highest since August. 2008.The yield rose 2.9 points in expectation of a rate rise from the Fed this week.
