Contrary to popular belief, September tends to be the most volatile month in the calendar year and true to form we’re seeing volatility pick up, led by equities and currency falls in emerging markets.
Argentina and Turkey continue to face economic crises, with Argentine officials this week holding talks with the IMF to speed up the release of a $50bn loan to help its ailing economy.
Emerging markets currencies have now fallen about 8 per cent against the US dollar this year, while adding to the pain this September are looming US rate rises and the ongoing China-US trade war.
RBA keeps rates steady, GDP growth surges
At home, news was more positive, with the RBA on Tuesday keeping interest rates at 1.5 per cent for the 25th straight month and an upbeat tone in governor Philip Lowe's accompanying statement.
Economic growth data also surprised on the upside, showing real GDP rose by 0.9 per cent in June, beating market expectations and meaning the economy has now gone 27 years with no recession.
Given the solid GDP numbers for June, the RBA’s forecast of 1 per cent growth for the next two quarters now doesn’t seem so overly optimistic.
Aussie dollar under pressure
Despite strong local economic news, the AUD/USD remained under pressure due to concerns about potential China weakness as the China-US trade war continues to ratchet up.
Investors, worried about how the escalating trade tensions will impact market perceptions of China, growth are obviously selling the Aussie, rather than focusing on domestic fundamentals.
US economy on growth track
In the US, the economy showed signs of continued momentum, with the recent ISM numbers – both manufacturing and services - adding to signs growth will remain solid in the third quarter.
There was also the release of the latest labour report, showing what the US has been waiting for -- a pick-up in wage growth. The report showed average hourly earnings for private workers increased 2.9 per cent in August from a year earlier, its quickest pace in nine years.
The news of accelerating wage growth supported the USD which rallied against most currencies, while the yield on policy sensitive 2-year Treasury yield hit a 19-year high above 2.7 per cent.
Low gold prices persist, crypto tumbles
Meanwhile, more global volatility and concerns around China and emerging markets has not affected the gold price which is still below US$1,200. In general we have not seen a large movement of assets into safe havens.
The gold price is also being impacted because currencies of major gold producers like Australia, South Africa and China have been falling.
In the world of cryptocurrency, Bitcoin took a tumble on Friday, falling $300 AUD or about 3.3 per cent -- not huge for Bitcoin but also not unexpected if emerging market currencies are falling.
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