RBA to Deliver 25 Bps Cut Today; Very Much Priced In

The Australian dollar has clawed its way back above 0.89, later yesterday and again overnight.

The session kicked off yesterday with a further downshift in the local AiG PSI Services index to 39.4, the lowest since February 2009, well undershooting that of the Euro-zone (49.8), UK (60.2) and the US’s (56.0), a reminder of weak local business conditions. That was reinforced by a dour June retail sales report that was softer than our lower-than-consensus 0.2% pick (market +0.4%) with a flat outcome in the month and no volume growth for the June quarter.

That initially sent the AUD/USD to its lows of yesterday’s session briefly below 0.8850, but since it’s been making up some lost ground to remain this morning above 0.89 ahead of this afternoon’s RBA Board outcome at 2.30pm. It’s symptomatic perhaps of how short the speculative market has been with AUD positioning, that there is already a lot of bad news priced in. Friday’s US payrolls report had left something of a bad taste in the mouth for the USD. The big dollar was not helped by weaker stocks overnight and failed to sustain gains in the immediate aftermath of a good reading from its non-manufacturing PMI that also prompted some rise in Treasury yields, keeping Fed tapering on the agenda.

The RBA outcome should not be any surprise with all economists tipping a cut and the market over 90% priced for a 25bps cut, the focus for the market will be very much on the statement but we are doubtful this will provide too much in the way of clues for coming meetings. The RBA is usually circumspect in this post-meeting Media Release and of course with the September Board meeting so close to the Federal election, there’s even more reason to keep its cards close to its chest. Watch for more colour in Friday’s RBA’s quarterly Statement on Monetary Policy.

While the AUD has made up some lost ground in the past 24 hours, so have the Kiwi and the Pound. The NZD was hit at the open in the wake of the Fonterra news, but has been recovering since. For the Pound, a stronger than expected PMI Services report added to other indicators pointing to some rebound in UK growth, supporting sterling, that’s made some gentle gains. After tonight’s industrial production data, the next focus for the Pound will be the BoE’s inflation report Wed.

Coming up today/ tonight/ this week

And so, the RBA meeting is the big focus today with focus and what discussion there might be of the risks sketched out by Stevens last week.

Before then we have June Australian trade data where we look for a somewhat lower surplus of $500m (market $800m), the Statistician’s measure of Q2 established house prices and July ANZ Job Ads ahead of Thursday’s labour force report.

Quiet’ish data-wise tonight, with UK industrial & manufacturing production German factory orders, US trade balance for June and Chicago Fed President Charles Evans is speaking. He’s a voter on the FOMC this year and at the dovish end of the policy spectrum.



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