AUD rallies, Russian CPI

Forex News and Events

RBA shift tone

As expected the RBA August Board meeting retained the cash rate at a record low of 2.00%. The central bank continue to see the current accommodative policy as “appropriate.” The policy outlook was generally balanced as, “further information on economic and financial conditions to be received over the period ahead will inform the Board's ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”

Yet the accompanying statement took a hawkish turn when members stated that AUD was adjusting to declines in commodity prices, sheading the language for more depreciations. In reference to the currency the statement said it was "the Australian dollar is adjusting to the significant declines in key commodity prices." This change in commentary indicates that the RBA has greater comfort in the current level of the AUD. The newly developing confidence in AUD pricing suggests that less verbal intervention or easing bias geared toward weakening the AUD will be required (baring no negative change in fundmentals). Local AUD yields jumped 3bps on the statement. Heavily sold AUDUSD quickly ran to 91.39 from 90.10 as shorts were squeezed. On the data front, Australian retail sales hastened 0.7% m/m in June, above estimates of 0.4% m/m and revised higher 0.4% m/m read in May. Finally, Australia’s trade deficit came in at A$2933mn in June slightly below expectations of deficit of A$3000mn. We will be watching developments in China carefully but favor carry based trades in AUDJPY and AUDCHF. The positive AU economic data specifically strong housing data combined with today’s slightly neutral statement (shift from dovish) indicates that it’s unlikely that the RBA will cut rates further. However, the SNB and BoJ are not tightening anytime soon.

Russia‘s inflation eyed:

“Today will be released the Consumer Price Index for Russia. This data represents a major concern for the Central Bank of Russia as it has prevented a larger downside change for the key rate last week. Indeed and as we expected, it has moved to 11% from 11.50% amid negative growth that printed at -2.2% year-on-year for the first quarter. Furthermore, the ruble is trading very low and as we are still thinking, a monetary policy must absolutely be cautious as there is a massive downside risk for the ruble coupled with a major inflation risk.

Traders will carefully watch the today’s CPI release, which is often interpreted as a monetary policy outcome. However, any key rate move takes at least a few months before being truly reflected in the economy. As a result, what really matters is the trend. Estimates for today’s data are about at 0.9% m/m while June figure printed at 0.2% m/m.

In its last week meeting, the CBR reiterated its inflation forecast for June 2016. The CPI is targeted to reach 7% before going lower to 4% in 2017. We think that those forecasts seem too optimistic as long as there is no sustainable growth trend. For the time being, easing rates has only supported high inflation. Nonetheless, we remain confident as there is still room for the CBR to act.

The USDRUB is set to increase again as long as the data are not fully supporting a pick-up in growth. We target a pair above 64 ruble within the next few weeks.”

Yann Quelenn – Market Analyst