Week in FX Asia – Asian Markets Unimpressed by ECB and NFP

• Reserve Bank of Australia holds rate at 2.5%
• Reserve Bank of India holds rate at 8%
• Thai Junta stabilizes economy Investors return

As expected all eyes in the market were focused on the European Central Bank decision. Faced with a deflationary threat there was great anticipation regarding the actions Draghi and his team would introduce. The market was underwhelmed with the announced measures as they did not deviate from the path of least resistance. The market so far seems to be calling the ECB’s bluff as even a solid NFP number was not enough to bring the EUR/USD down.

India and Australia both held rates. There is optimism in India with the incoming government and the most anticipated partnership will be with new PM Modi and RBI governor Rajan. So far there are hints that they can forge a much needed partnership in order for India’s economy to steam ahead.

Australian GDP looked sharp in Q2, posting an excellent gain of 1.1%. This beat the estimate of 0.9%. The GDP reading points to strong growth in the economy, but surprisingly, other key releases failed to keep pace this week. Building Permits, Retail Sales and Trade Balance all missed their estimates in May. Meanwhile, there were no surprises from the RBA earlier this week, as it maintained the benchmark interest rate at 2.50%, where it has been pegged since last July. The RBA noted that present monetary policy would “foster sustainable growth in demand and inflation”, and the Aussie reacted with slight gains.

Next Week For Asia:

The past week was heavily concentrated in ECB and American employment. Next week brings the spotlight to Asia. Japan will release the official first Quarter GDP numbers. Advances of the number are well known. Japan had an incredible first quarter thanks to the weak yen and more importantly the introduction of the sales tax hike at the end of the quarter. The incoming higher taxation boosted consumption but there are questions on how can it be sustained in Q2.

The central bank of New Zealand will announce its interest rate decision on Wednesday. The market consensus points to another hike following the two successive hikes in March and April. The current rate stands at 3.00%. A 25 basis points hike is the most likely outcome.

Australian employment data will be released on Thursday. There is an expectation around higher unemployment and how much has the new government been proactive to deal with the issue.

The Bank of Japan meeting ends on Friday. There are no changes expected given the rhetoric the market has been fed by the BoJ. The Japanese central bank is pleased with the current pace of the economy and the Q1 numbers certainly support their views. There is no immediate action needed, so there is low probability there will be one next week by the BoJ.

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