RBA Minutes today expected to reinforce ‘slow and gradual’ message on economy
The Australian Dollar has been unsure quite what to focus on: the rally in US equity markets and the consequent drop in the VIX index of volatility, an unchanged gold price or the prospect of another unexciting set of RBA Minutes to come later today. AUD/USD has therefore swung up and down quite a few times across the three main time zones on Monday before finishing on balance very little changed around 0.7775. It gained against the NZD but lost ground against the EUR, CAD and GBP.
The Minutes of the March RBA meeting are due this morning but are thought unlikely to add much to what was already in the published Statement and in the Governor’s very thorough economic assessment delivered recently in Perth. Yes, there will be some encouraging signs of a possible pick-up in wages as the labour market tightens and there could well be a few anecdotal hints of localized skills shortages. Overall, however, it would be a big surprise if the message was anything other than “slow and gradual” progress towards the inflation target and the Bank’s more upbeat assessment of GDP over the coming quarters.
As well as the domestic economic indicators, investors will also be looking at the Q1 GDP report in Australia’s largest trading partner. The Chinese economy is expected to have grown at an annualized pace of 6.8% in the first quarter of 2016, whilst we’ll also see monthly data on retail sales, industrial production and fixed investment. The Australian Prime Minister will be in London this week for the Commonwealth Heads of Government meeting. Mr. Turnbull said on Monday he had spoken with Theresa May over the weekend and would resume their conversation in London and he will then also meet with the German chancellor, Angela Merkel, and the president of the European Commission, Jean-Claude Juncker, to advance talks on a separate trade deal with the EU. The Aussie Dollar opens in Asia this morning at USD0.7780, with AUD/NZD at 1.0565 and GBP/AUD1.8415.
AUD / NZD
Expected Range: 1.0490 – 1.0610
The New Zealand Dollar had a disappointing session in Asia on Monday but then regained all its losses against the USD, even if it remained lower against all the other major currencies we follow closely here. NZD/USD fell from 0.7355 to a low at lunchtime in Europe of 0.7335 but by the time European traders headed home, it had bounced back to 0.7365. The AUD/NZD cross had a 40 pip range from 1.0555 to just over 1.0590 but finished the day just marginally higher around 1.0565.
In economic data, New Zealand’s performance of services index rose 3.5 to 58.8 in March, signaling the fastest pace of expansion since January 2017. The analysts at BNZ who compile the survey noted that, “Sales activity drove the strength, with this sub index rising to 64.1 – near its highest level since the survey started 11 years ago… At least some of the March strength is likely a bounce back from a soft February. We have seen a similar pattern of a softer February followed by a strong March in other indicators like electronic card transactions. At this point, a stronger PSI is pleasing to see, especially in the context of the slowing we saw in last week’s Performance of Manufacturing Index. Combined, these indicators suggest reasonable GDP growth has continued into 2018.”
Today we have the REINZ house sales numbers and on Wednesday there’s the latest GDT dairy auction but the main focus for investors this week will be Thursday’s CPI report. Consensus expectations for Q1 are for a 0.5% q/q increase to take the annual rate of inflation down from 1.6% to 1.1%. The New Zealand Dollar opens in Asia this morning at USD0.7360 and AUD/NZD1.0565.
GBP / AUD
Expected Range: 1.8310 – 1.8490
The British Pound had a very good day on Monday, rising against all the major currencies we follow here. Its’ gains ranged from 0.2% against the EUR to 0.4% against the AUD and 0.6% versus the US Dollar. GBP/USD came out of the blocks pretty strongly in Asia, moving from 1.4240 to 1.4260 then on to a 1.43 ‘big figure’ by the middle of the European morning. By the afternoon, it had made a fresh high just above 1.4330; its best level since the day of the EU referendum back in June 2016. EUR/GBP couldn’t quite reach 1.16 but GBP/AUD is up at 1.84.
Yet again, the pound’s move was not driven by any strong incoming economic data or news flow. Instead, it appears to be in one of those phases where it is going up because it is going up: momentum-driven investors are riding its strength and in turn attracting fresh capital inflows as previous technical resistance levels are overcome. Latest figures from Visa show uncertainty surrounding Brexit, wage stagnation and creeping inflation are all weighing on consumer confidence, which has contributed to the largest quarterly fall in spending — of 1.4 per cent — since the final quarter of 2012. Consumer spending fell in all three months of the first quarter, with the rate of decline steepening from 1 per cent year-on-year in February to 2.1 per cent in March
This morning we’ll get to see if the Sunday Times was indeed correct in its claim that, “figures out on Tuesday are expected to show that average wages in February climbed 3% on a year earlier, the first time pay growth has outpaced the rise in consumer prices since January last year.” The claimant count of the jobless total is expected to have risen by 5k with the unemployment rate steady at 4.3%. The GBP opens in Asia this morning at USD1.4330, GBP/AUD1.8420 and GBP/NZD1.9475.
AUD / USD
Expected Range: 0.7745 – 0.7810
The US stock market had another good day with the DJIA up over 200 points and the S&P 500 index more than 20 points higher as worries over a possible escalation of the Syrian missile crisis seemed to quickly fade. After a higher open for index futures, the mood in Asia had been one of some caution but as neither index broke below Friday’s closing levels, so the early gains were progressively extended into the North American afternoon. Whilst the stock market did quite well, however, the US Dollar went into reverse. From an opening level around 89.40, the dollar index slipped steadily lower and at one point fell on to an 88 ‘big figure’ for the first time in over two weeks before rallying very marginally to close at 89.00.
In economic data, the US Empire manufacturing survey saw the business conditions index slide to 15.8 in April from 22.5 in March. The new orders index fell to 9.0 from 16.8, while the shipments index declined to 17.5 from 27.0, and unfilled orders decreased to 3.7 from 12.7. Looking six months into the future, the general business conditions index plunged to 18.3 from 44.1 last month whilst the new orders index decreased to 18.5 from 43.0. Separate data showed U.S. retail sales rebounded in March after three straight monthly declines as households boosted purchases of motor vehicles and other big-ticket items. The Commerce Department said retail sales increased 0.6% last month after an unrevised 0.1% drop in February. Excluding automobiles, gasoline, building materials and food services, the so-called core retail sales - which correspond most closely with the consumer spending component of gross domestic product - rose 0.4% last month after being unchanged in February.
Kicking off a busy week of Fed speakers, Federal Reserve Bank of New York President William Dudley popped up on CNBC to say the central bank will stay on its gradual path of raising interest rates unless inflation moves up by an appreciable margin. “I don’t think we know exactly how many more rate hikes we are going to do this year… As long as inflation is relatively low, the Fed is going to be gradual. Now, if inflation were to go above 2 percent by an appreciable margin, then I think the gradual path might have to be altered.” The USD index opens in Asia this morning at 89.00.
AUD / EUR
Expected Range: 0.6255– 0.6335
Through the first 8-10 hours of trading on Monday morning, EUR/USD was net unchanged around 1.2330, having been stuck in a very narrow range throughout the Asian session. Through the European morning, however, the pair began to rally quite sharply and by early afternoon had gained more than half a cent to 1.2390; just above last Wednesday’s high and the best level in 2½ weeks. The EUR gained against the AUD, NZD and CAD also but couldn’t keep pace with the strength of the GBP and finished in second place on our one-day performance table.
Ahead of a meeting between German Chancellor Angela Merkel and French President Macron on Thursday, Reuters yesterday had details of a paper from her Conservative supporters in the new coalition which stresses that individual euro zone member states must remain liable for their own risks. “Our guiding principle is that the assumption of risks by a member state must be accompanied by the liability of that state… Financial aid will only be granted with strict conditions,” the proposal said, insisting that lawmakers in the German Bundestag must retain the right to decide on granting financial aid to other euro zone member states. “We must not overstretch the European Union, because disappointment among citizens over Europe would weaken the successes and acceptance of the European idea,” it added.
After a totally empty economic data calendar on Monday, today brings Germany’s ZEW survey. Eurozone CPI is on Wednesday and then the current account numbers on Thursday. ECB members have just 48 hours before they enter their week of silence ahead of the April 26th Council meeting. The EUR opens in Asia today at USD1.2380, AUD/EUR0.6285 and NZD/EUR0.5945.
AUD / CAD
Expected Range: 0.9750 – 0.9810
The Canadian Dollar continued its good run on Monday, almost tying with the EUR for second place in our one-day table and gaining ground against the AUD, NZD and US Dollars. USD/CAD began the week around 1.2605 and having moved to a high around 1.2625 by the end of the Asian session, then fell all the way down to 1.2565; barely 10 pips above last Friday’s 2-month low. AUD/CAD fell just 10 pips whilst NZD/CAD was around 30 pips lower on the day.
In political news, Canadian Prime Minister Justin Trudeau has been forced to intervene in a dispute between the provinces of British Columbia and Alberta over plans to expand an existing pipeline and lay nearly 1,000km of new pipe from Alberta’s oil sands to the Pacific coast. The political stalemate over the C$7.4bn project became a national issue last week after contractor Kinder Morgan Canada announced it would walk away from the project unless it saw a clear path to completion by the end of May. Mr.Trudeau and his Liberal government came into office in 2015 on promises of striking a balance between economic growth, environmental concerns and repairing the country’s fraught relationship with indigenous peoples. The move by Kinder Morgan Canada, which was spun off by its U.S. parent last year, puts pressure on Trudeau to solve the problem without alienating voters in British Columbia or presiding over an investment failure ahead of 2019 elections. It is a delicate balancing act and one which could at the very least cast some doubt over the durability of the Canadian Dollar’s recent rally.
The Bank of Canada holds its monetary policy meeting on Wednesday having already hiked rates three times since July 2017. Economists from 10 of the 11 primary dealers of Canadian government securities told the Wall Street Journal they anticipate the BoC will keep its key rate at 1.25% this week. A majority of those surveyed said they expect at least one more interest rate increase during the second half of 2018. The Canadian Dollar opens in Asia this morning at USD/CAD1.2565, AUD/CAD0.9780 and NZD/CAD0.9250.
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