Throughout most of the session price action was centred on the yen, with USDJPY retracing all of its overnight losses, before running into some resistance around its overnight high. Elsewhere in FX world, the dollar was the biggest loser as investors priced in an increased chance of more QE from the Fed. However, the big event was the RBA rate decision were the bank confirmed what most of the market already knew by leaving the official cash rate at 3.5%.
AUDUSD dropped a little on the back of the rates statement that accompanied the decision as the board pointed towards hurdles for the Australian economy coming from overseas, namely Europe. However, in the tradition of the RBA the statement was fairly vague. Once again, the bank pointed towards slowing growth in Europe and China, but stated that the US should muddle along at a moderate pace. Overall, the bank said there remains some potential for adverse shocks to the Asian region stemming from other parts of the world, by which we assume they mean Europe.
Domestically, the bank is happy with the direction of inflation and growth. The RBA Governor Stevens did, however, mention the volatile exchange rate and the subdued housing market. Nonetheless, we are going to watching the Q2 inflation report closely, which we expect to show inflation at the bottom end of the target range. Combined with the RBA’s clear concern about the situation in Europe and the still struggling non-mining parts of the economy, the expected weak inflation print may create the prefect cocktail for a 25 bps cut in August.
Earlier in the session, building approvals data printed much higher than expected, coming in at +27.3 m/m (exp. +5.0%, prior -8.7%). Australian housing data has rebounded in a big way, but the bounce-back is being led by apartment approvals which are typically very volatile. Thus, we should look for consistency in the coming months before we become too bullish on the house sector.
AUDUSD jumped a little on the back of the housing data, but in the lead up to the rate decision the pair initially found some resistance around its high since the beginning of May (around 1.0277), before creating a new high around 1.0286. Following the rate decision the pair dropped a little as the rates statement that accompanied the decision was slightly more dovish than expected, with emphasis on slightly.
Overall, the aussie is relatively unchanged against the dollar for the session. Clearly the pair is struggling to break through a grouping of its 200day and 100day SMA that we highlighted in this morning’s pre-RBA update.
Surprisingly, despite the better than expected housing data out of Australia the ASX200 is still trading in negative territory. In fact, the index has drifted lower throughout the session. This is in complete contrast to most equity markets throughout Asia which are currently in the green. It is a similar story for commodity prices, with Gold and oil prices both rising slowly throughout the session.