Below trend growth to continue
It’s been a very eventful past two sessions for the AUD that sits atop the major FX leader board, trading at 0.7935 in early trade this morning. The reaction of the AUD immediately after the RBA statement said it all.
It’s been a very eventful past two sessions for the AUD that sits atop the major FX leader board, trading at 0.7935 in early trade this morning. The reaction of the AUD immediately after the RBA statement said it all. The AUD only briefly jagged lower, only to just as quickly rebound and more, trading up from 0.7850 before the RBA announcement to 0.79 before consolidating in the local session in the higher 0.78s. By the close, the local market was pricing in a year-ahead cash rate of 1.89%, up from 1.83% when the market opened.
It was the removal of the easing bias altogether and acknowledgement that the cut reinforced “encouraging trends in household demand” that saw AUD buying return. And while the RBA’s wording on the AUD was changed, it was really more tweaking than substance. Instead of “a lower exchange rate is likely to be needed”, it was “further depreciation seems to be likely and necessary”, a little stronger in tone but the same meaning.
When the US printed a much higher trade deficit in March (which might also see Q1 GDP revised to negative – though that’s history), the USD lost ground. Along with other majors, the AUD/USD surged again, the A$ the same-to-better on the crosses. The trade report saw the Atlanta Fed’s Nowcast of Q2 GDP steady at 0.8%, well below the Blue Chip Consensus of 3.2%. It’s early days in the quarter and the fact that the record 7.7% import rise in March reflected the unlocking of import flows after the West Coast port shutdown should see imports settle back and the trade deficit be more growth supportive.
The US ISM Non-manufacturing though printed higher, the April index higher than expected and including higher new orders. Even so, the US$ was unable to make up lost ground (but Treasury yields did). Somewhat unsettled investor sentiment was not helped by more Greek news, this time on reports the IMF may be cutting a funding line unless more debt write-downs are agreed to by the Europeans, according to a FT report.
First up this morning at 8.45am is NZ’s Q1 labour force report and its wages data. Our BNZ colleagues are looking for quarterly employment growth of 0.9% – slower than Q4’s bumper +1.2%, but hefty enough to keep annual growth at a staggering 3.5%.
The NZ unemployment rate is expected to fall back to 5.4% from the 5.7% it nudged up to in Q4 in counter-trend fashion. The market is looking for 5.5%. As for the Q1 Labour Cost Indexes the RBNZ staff go straight to the LCI when talking about wage inflation. We expect the private LCI’s annual inflation to edge up to 1.9% in Q1, from 1.8% (based on q/q of 0.3%, compared to the market’s expectation of 0.4%, 2.0% y/y).
At 10.00 our time, arch-dove Fed President Kocherlakota is speaking. He’s not a voter on the FOMC this year.
Locally, we have HIA new home sales for March (11.00) ahead of retail sales at 11.30. Our pick for retail sales is a point higher than the market, a rise of 0.5% tipped (market 0.4%) while we expect Q1 retail sales volumes rose for the second quarter by 1.5%. The market is looking for 0.8%.
Also out in our time zone today are the HSBC service and composite PMIs for April, for China and India.
The final EX service/composite PMIs are out tonight along with the services and composite PMIs for the UK. EZ retail sales for March are expected to have fallen another 0.7%. Then in the US, the focus will be on the ADP Employment report – goodness knows why, it’s been an ordinary lead into payrolls. Fed Chair Yellen and the IMF’s Lagarde are speaking on a panel in Washington. The Canadian IVEU PMI is also out and Fed Presidents George (hawk, non-voter) and Lockhart (dove, voter) are speaking, George on credit markets and Lockhart on monetary policy.
Greece is scheduled to make an interest payment to the IMF of about €201mn.
AUD over 0.79: Eurostoxx 600 -1.5%, Dax -2.5%, CAC -2.1%, FTSE -0.8%. Dow -142 points to 17,928, -0.8%, S&P 500 -0.8%, Nasdaq -1.2%, VIX 14.31 +11.4%. Mumbai -4.1%, Nikkei 225 -1.5% and ASX 200 -0.2%; ASX SPI futures this morning -0.9%. US bond yields: 2s at 0.62% (2), 10s at 2.19% (+4). WTI oil at $60.75 (+3.1%), Brent at $67.64 (+1.8%), Malaysian Tapis (yesterday) $68.10 (-0.4%). Gold at $1192.60/oz (+0.5%). Base metals: LME copper +1.3%, nickel +4.0%, aluminium +3.6%. Iron ore $58.7/t +2.0% Chinese steel rebar futures +0.4%. Soft commodities spot futures: wheat -1.4%, sugar +1.9%, cotton +0.1%, coffee 0.6%. Euro Dec 14 CO2 emissions at €7.59/t (-0.4%). The AUD/USD’s range overnight 0.7864-0.7956; indicative range today 0.7900-0.7975 ahead of the RBA; the AUD/USD is 0.7943 now
US trade balance (Mar) $-51.4b (L: $-35.4b; E: $-41.7b); ISM Non-manufacturing (Apr) 57.8 (L: 56.5; E: 56.2)
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