Daily Morning Report 12.02.2016

The Australian dollar fell slightly after the central bank chief indicated the bias for interest rates is dovish in testimony before parliament on the economic outlook.

Also in Australia home loans for December rose 2.6%, less than the 3.0% month-on-month gain seen and housing finance rose 0.6%, compared to a 0.7% gain in November.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, eased 0.22% to 95.64.

Earlier, Reserve Bank of Australia Governor Glenn Stevens said the central bank is assessing global and local data to determine where recent global market volatility and damp commodity prices are taking the economy.

He later added that the cash rate is unlikely to go higher anytime soon and then suggested the question is whether it would go lower than the current record low 2%.

“We will be examining new information over the months ahead as we try to discern the answers to these and other questions,” Stevens said in a statement before the House of Representatives Standing Committee on Economics.

“With inflation unlikely to cause a problem by being too high over the next year or two the statement after the recent meeting indicated that the board retains the flexibility to ease further should that be helpful,” Stevens said.

It will take time to see if recent financial turbulence will have a materially negative effect on aggregate demand at home and overseas, Stevens said.

“The more recent anxiety is probably best described as greater uncertainty over the intentions of Chinese policymakers and over whether they will be able to carry off the economic transition China needs. This anxiety has been reflected in capital flows,” he said.

Overnight, the dollar extended losses against the other major currencies on Thursday, as Federal Reserve Chair Janet Yellen reaffirmed comments made on Wednesday, sparking uncertainty over the timing of future rate hikes.

Yellen repeated to the Senate Banking Committee on Thursday that the U.S. economy is recovering while acknowledging that a weakened global economy and drop in U.S. equity markets are tightening financial conditions faster than the Fed wants.

In testimony before a congressional committee on Wednesday, Yellen said there are good reasons to believe the U.S. will stay on a path of moderate growth that will allow the Fed to pursue “gradual” adjustments to monetary policy.

The dollar had mildly strengthened earlier, after the U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending February 6 decreased by 16,000 to 269,000 from the previous week’s total of 285,000.

Analysts expected jobless claims to fall by 4,000 to 281,000 last week.