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Australia, private sector credit (September): 0.4% m/m (0.4% expected)
Australia Private sector credit
AUD/USD Edges Higher Ahead Of RBA Statement
AUD/USD has posted a small gain ahead of the RBA cash rate and rate statement scheduled for release today at 23:30 EST. The pair recovered from a gap down at the open and posted the bulk of gains in Asian trading. A decline in early European trading was met with a bid in North American trading as the pair trades near highs of the day. AUD/USD was last seen at 0.7606 for a gain of 0.15%.
Following the last rate cut from Australia in August, the Reserve Bank of Australia has been seen taking a more neutral stance in their policy communications as the central bank has fallen into wait and see mode. The latest meeting minutes reflected that the central bank would have updated inflation data at their next meeting, and the assessment of last week’s data release will tend to be the highlight of the meeting. While quarterly CPI data increased at a pace higher than expected, gains were mostly derived from fruits and vegetables as a result of adverse weather conditions. Analyst had set the consensus for the figure to rise 0.5% while a rise of 0.7% was reported. Forward guidance from the RBA will be important as the bank can signal whether their easing cycle has completed or if there are intentions to cut the official cash rate further. With the futures markets only pricing in a 6% probability, it is unlikely that the central bank would take any action at the meeting today.
Out of the United States today, core personal consumption expenditures were reported to rise 1.7%, unchanged from the prior month. The Chicago purchasing manager’s index printed at 50.6 in October and the Dallas Fed manufacturing business index improved to -1.5.
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Trading the RBA - Views from major banks
RBA Meeting:
BNPP: RBA On Hold; Global Equities Real Driver For AUD.
We expect the RBA to leave policy unchanged this week, in line with market pricing which currently assigns just 6% chance of a rate cut this week and only 11% by year-end. Commodity exporter currencies remain highly sensitive to the risk environment and, while we expect the USD to correct lower vs. the low-yielder currencies this week, the USD may hold up better vs. the AUD and CAD if the risk environment wobbles. Global equities continue to drive these currencies especially AUD & NZD.
NAB: Risk Of RBA Steps Its Dovish Rhetoric But AUD Unlikely To Break Below Range.
Although the RBA is widely expected to remain on hold this afternoon with the market pricing a 5% probability of a rate cut and most economists including NAB's tipping a no change, the post meeting statement will be closely scrutinised for any signs of an easing bias, particularly given the low core inflation print in Q3 and the disappointing September labour force report which showed a trend slowdown in the rate of employment growth. So the risk is the RBA steps up its dovish rhetoric, the market is pricing just 12bps of rate cuts over the coming year and a month ago pricing was at 22bps, suggesting there is scope for repricing. Similarly the AUD could come under some pressure, however a break below the 0.745-0.775 range held since July this year looks unlikely to be tested.
Credit Agricole: RBA's 'Soft Speak' On AUD To Continue; Inflation Rhetoric Key.
The RBA Board meeting outcome as well as its statement on monetary policy (SoMP) will be important for the AUD. With Australia's underlying inflation in line with the RBA's August SoMP, we expect the RBA to be on hold this week. Its rhetoric around the inflation outlook will be important for markets. For several months the RBA has said that it expects inflation to remain low for "sometime". We think that there is some risk that this outlook could be upgraded on the back of higher commodity prices and inflation appearing to stabilise in Q3. The Australian TWI remains at the edge of the RBA's tolerance zone, so we expect the RBA's soft speak on the currency to continue. Low liquidity around the running of the Melbourne Cup horse race soon after the RBA meeting outcome could exaggerate some of the moves in the AUD. The potentially more important RBA communique this week is the RBA's November SoMP. While normally dull in terms of its FX market impact, we think that an upgraded RBA inflation outlook could signal a move closer to the end of its easing cycle. With the market still pricing in a 30% probability of a rate cut in 2017, such a signal would be good news for the AUD. Building approvals, trade and retail sales data will also be adding to AUD volatility. Despite cooling house prices inflation, building approvals have remained near record highs. Retail sales data bounced post the RBA's August rate cut and it will be interesting to see if this momentum can be maintained. Trade data should get a boost from stronger commodity prices. With the Australian 2Y swap rate running a bit ahead of data surprises, financial markets will likely be a bit more sensitive to any downside surprises in Australian economic data
BofA Merrill: RBA On Extended Hold; To Maintain An Easing Bias.
We expected the RBA to be on hold for an extended period following the August rate cut. It now looks likely this will be more extended than previously thought as two rate cuts in 2016 have served to support activity in the housing sector. We highlighted upside risks to the outlook for housing sector activity in our recent study. However, the Australian experience at present is particularly varied across the states. Increased supply of units will continue to put downward pressure on rents that make up 7% of the CPI. We still expect the RBA will maintain an easing bias as activity and inflation risks are still skewed to the downside. With the economy still undergoing its transition towards non-mining activity the RBA still has a preference towards a lower currency despite higher commodity prices. So the Bank is again confronted by a communication challenge and the risk that prices for tradeable goods and services might remain mute
CIBC: RBA to Let Fed Do the Heavy Lifting
After ten years under the helm of Governor Stevens, the RBA's transition to Governor Lowe has been relatively seamless. That's been an important factor behind the stability in AUD recently. However, inflation remains cool and employment has disappointed recently. That has pushed up the marketimplied probability of a Q1 2017 rate cut to 35%. Nevertheless, the RBA would likely rather see the Fed do the heavy lifting for them by raising US interest rates, pushing the Australian currency weaker in the process. The RBA is likely to get its wish and see the aussie tumble into year-end around the time the Fed hikes rates. CIBC targets AUD/USD at 0.73 by year-end.
Barclays: RBA Comfortably On Hold; NZD More Vulnerable Thank AUD To USD Strength
Although higher headline inflation is driven by temporary factors (adverse weather conditions pushed up fresh food prices) and underlying inflation remains low, Australia's economic outlook appears resilient to external shocks, and unless there is significant AUD appreciation, we think the RBA sees no urgency to ease further. The Statement of Monetary Policy on Friday will likely reflect this bias. The September retail sales report (Friday) is likely to show a modest pullback after a strong increase in August, but we believe data will suggest healthy spending trends on a y/y basis. We continue to expect the RBA to stay on hold through 2016. With the RBNZ clearly being more dovish and having a stronger bias for a weaker exchange rate, we continue to see the NZD being more vulnerable than the AUD to USD strength.
RBC: No Change From The RBA; An Implicit, Albeit Mild, Easing Bias.
We expect no change from the RBA tonight. Inflation remains sub-target and is set to stay there for some time, but the activity data are more mixed (housing-related data are firm and key bulk commodity prices continue to rise). An implicit, albeit mild, easing bias will remain evident in the key macro forecasts in the SoMP, with core inflation set to remain sub 2% this year and the 1½-2½% forecast range unchanged through to the end of 2018. Near-term GDP seems likely to be revised lower. Nevertheless, we expect the tone of the statement and the SoMP to be reasonably balanced/positive, highlighting near trend growth and consistent with an RBA on the sidelines. On Friday, we look for a modest increase in September retail sales (0.3%m/m).
Reserve Bank of Australia November monetary policy announcement and accompanying statement
An on hold decision was expected, and a scan of the headlines (those above are via Reuters) shows nothing else to surprise or shock. The full text is linked, below. Lowe said a few weeks ago the RBA were not 'inflation nutters', today's statement confirms that he expects growth to pick up over the next 12 months and inflation to gradually rise over the next two years.
Australian Dollar Strength to be Limited
An impressive rise in AUD/USD at the start of the new month appears to have stalled but we note there is further room to climb before it reaches a key barrier.
A strong start to the new month for the Australian Dollar saw the currency leap 0.88% against the US Dollar on the observation that Trump is catching Clinton in the polls.
A bout of Dollar selling reflects that markets believe a Trump victory to be potentially disruptive to the status quo.
However, the AUD also strengthened across the board after the RBA decided to keep rates at 1.5% on strong labour market data, mixed inflation data and iron ore prices being at a six-month high.
The decision was broadly anticipated by market participants, however, the market was not expecting such a statement to come from Philip Lowe.
"The RBA Governor seems ready to keep inflation below the 2% to 3% target band in order to avoid putting pressure on an overheating real estate market. Moreover, the strong job market and solid growth figure mean there is no urgent need to provide more stimulus," says Yann Quelenn at Swissquote Bank.
AUDUSD rose after the rate decision, however Quelenn remains nonetheless bearish on the pair as demand for USD will increase
The Aussie has found it increasingly difficult to rise above 0.77 highs despite four attempts over recent months.
The lack of upside for the pair comes despite recent data showing the Australian economy is performing well.
The apparent explanation for this lack of upside comes from increasingly firm expectations that US Federal Reserve will increase interest rates in December 2015.
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Australian October Services PMI: 50.5 (prior 48.9)
Australian Industry Group Performance of Services Index for Rocktober: 50.5- prior 48.9
ANZ says AUD range to break next week - US election the catalyst
From ANZ's 'Strategy Weekly', their view on the AUD (in brief)
Australia - Retail sales for September, +0.6% m/m (expected +0.4%)
Retail sales data results have been very soft in Australia this year, but a beat for this latest
AUD/USD Struggles To Move Lower Following US NFP Figures
Employment data out of the United States came in relatively positive but failed to trigger a sustained drop in AUD/USD as election uncertainties continue to weigh on the Greenback.
The headline non-farm employment change figure was reported at 161,000 versus an expected 174,000 and a prior upwardly revised reading of 191,000. While the figure slightly missed the analyst forecast, the number will tend not to cause any concerns for the potential of a rate hike in December. The figure supports a near-term rate hike as there is some expectation for further gains in the labor markets to be limited. The unemployment rate remained steady at 4.9% as expected, ticking lower from the prior 5.0% reading. An improvement in average hourly earnings to 0.4% against an expected 0.3% and a prior reading of 0.2% will add support to the Fed’s inflation outlook, suggesting the overall data was positive.
AUD/USD initially dropped about 16 points on the data release but was seen turning higher to completely erase gains as a result of the report. Uncertainties regarding the US election has weighed on the markets this week and is likely to playing a factor in the price action following today’s US jobs report.
Volatility has been seen in the financial markets this week as a result of the election. Safe-haven assets have been bid this week with precious metals, the Japanese Yen, and Swiss Franc all making notable gains. The US Dollar index (DXY) has posted three consecutive daily losses and trades relatively unchanged shortly after the US data. For the week, only the Candian Dollar has posted a loss against the Greenback, albeit a marginal loss.
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AUD/USD forecast for the week of November 7, 2016
The Australian dollar rallied this past week, showing signs of strength that we still cannot get above the 0.7750 level. This is an area that has been massively resistive in the past. Because of this, I think that the market will continue to bang around this area as we try to build up momentum to finally break out. It does not look like we are ready to do so, but at this point in time I believe that the Australian dollar continues to follow gold overall, so if the gold markets rally, this pair will as well.