Talking Points:

Pound May Rise as BOE’s Carney Plays Down Rates Impact of Brexit Vote
Australian Dollar Gains as Labor Party Agrees to Support FTA with China
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Scheduled commentary from Bank of England Governor Mark Carney is in the spotlight in European trading hours. The central bank chief will use the Cairncross memorial lecture at St Peter’s College to present a study on the impact that a possible UK exit from the EU on BOE policy. Prime Minister David Cameron pledged to hold areferendum on so-called “Brexit” by the end of 2017.

Mr Carney called the report a “yawner” yesterday, but this may mask its significance for investors. Uncertainty ahead of the Brexit referendum could weigh on consumer and business confidence, which may in turn prove negative for economic growth. This might hypothetically delay or slow the pace of BOE interest rate hikes. With this in mind, a report suggesting referendum fears are unlikely to derail policy normalization may boost the British Pound.

The Australian Dollar traded higher in otherwise quiet overnight trade after opposition leader Bill Shorten said his Labor party will support the government’s push to secure a free trade agreement with China. Australian and Chinese officials struck the deal in November. Trade Minister Andrew Robb said a package of laws to enable the FTA agreement to proceed will be unveiled on Wednesday.

China is Australia’s largest trading partner and investors may have interpreted the FTA deal as paving the way for a further expansion of cross-border commerce. This could boost economic growth and undermine the case for deeper RBA interest rate cuts.

Chinese growth is slowing however, which may dampen optimism going forward. Figures released earlier this week showed the year-on-year GDP growth rate slowed to 6.9 percent in the third quarter, the weakest since the GFC trough of 6.2 percent set in the first quarter of 2009. Investors are pricing in a 50 percent chance of a 25 basis point cut at the next policy meeting, down from 69 percent at the start of the week.

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