This initial, almost unshakable belief that the RBA would loosen monetary policy for the second month in a row was fuelled by some disappointing economic data at the beginning of this month. The big shock came from significantly softer than expected employment numbers - Australia’s unemployment rate unexpectedly jumped to 6.4% in January (expected 6.2%) from 6.1% in December. The most disappointing part of the report was a loss of 28.1K full-time jobs; part-time jobs jumped 15.9K, bringing the total employment loss to 12.2K (expected -5.0K).
However, after the ABS released a statement saying that statistical volatility may have contributed to the increase in unemployment, the market began to really question the accuracy of the numbers. The following day the RBA released its quarterly monetary policy outlook which emphasised that monetary policy is no silver bullet and its ability to spur economic growth is less pronounced that it has been in the past. Since then the market become less and less convinced that the RBA will cut the cash rate next month.
Today’s CAPEX figures may be the final piece of the puzzle. Private capital expenditure is expected to fall 1.6% in Q4, down from a 0.2% gain in the prior quarter. Manufacturing and mining are expected to lead the decline in CAPEX in 2014/15, but we are expecting a mildly encouraging jump in CAPEX plans for the services sector. It’s also worth keeping an eye on the first estimate for 2015/16, yet these early estimates can be unreliable.
Market reaction
Overall, a softer than expected set of numbers today, especially if we don’t see much life in the services sector, may cause the market to do another about-face on its expectations for next week’s policy meeting at the RBA. This would be bad news for AUD and AUDUSD may push away from 0.7900 very quickly. Meanwhile, a stronger set of numbers may be all AUDUSD needs to reach 0.8000 in the near-term.
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