RBA Governor Stevens speaks to an economics conference in Tasmania from 11am Syd/9am Sing/HK. There will be great interest in his view on domestic spending (sluggish consumer, fiscal tightening), housing (is the RBA still relaxed about prices?) and of course AUD. The statement on Tue included only a mild increase in concern over AUD resilience impeding ‘rebalancing’, mild enough to spark a short-covering rally. Gov Stevens will have the chance to strengthen the rhetoric on AUD if he so chooses. But the strongest language of 2013 is unlikely to be repeated so long as the RBA does not return to an easing bias.
There is plenty of risk for AUD in the official May data releases at 11:30am Syd/9:30am Sing/HK. The main focus will be retail sales though building approvals are also important. Retail turnover grew strongly from Sep 13 to Jan 14, in an apparent election effect but has since printed just 0.2%, 0.1% and 0.2%. May should be no better, with consumer sentiment tumbling in anticipation of the Budget and struggling afterwards. Moreover, an unusually warm May will have hurt winter clothing sales. Drawing on retail anecdotes however, we still look for mild growth, 0.2% m/m, above the median forecast of flat.
Building approvals rose strongly in mid-2013 but the trend seems to have topped out since then, with a bounce in Jan followed by three consecutive falls of around 5% each month. We look for a partial recovery, up 3% m/m, about in line with consensus. This series is very volatile so AUD reaction to any large surprise should be tempered.
In Asia, we will see a flurry of June services PMIs, including China’s at 9am local (official) and 9:45am (HSBC). The fact that economists don’t bother to forecast any of these surveys hints at their market relevance.
On Asian FX, the improvement in USD sentiment is likely to drive more of a short squeeze in some USD/Asia pairs today. The USD/CNY fix will come in higher but if it's stronger than expected the market may push USD/CNH back towards the 6.23 level. USD/SGD should find continued support ahead 1.2450 and while KRW will remain an outperformer it may give back some gains today. INR is the preferred high beta play and looks to be breaking into a higher range against the USD. USD/IDR should continue to push higher.
The ECB’s monthly meeting almost always generates some EUR volatility, even with no plausible risk of any policy change, following the raft of new easing measures in June. The press conference will be the focus, with President Draghi no doubt set to take questions on whether there has been any progress on assessing ABS purchases, whether the recent data adds to concern over persistent low inflation, whether QE is the next step etc. The lack of new policy steps should limit the ultimate EUR impact but in general we see EUR/USD as a sell with a 1.37 handle.
Friday’s Independence Day holiday sees the June employment report brought forward to Thursday. The median forecast on non-farm payrolls is 215k, which would be a strong result given job creation exceeding 1 million in Jan-May, a period which included a sharp contraction in GDP. Positioning is probably for an even stronger reading however, after the ADP data. Westpac looks for 160K, an outcome which would knock USD sharply lower. We agree with consensus on the separately calculated unemployment rate, steady at 6.3%.
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