The Aussie Dollar Steadies after an RBA Wobble, with Focus now on the FED

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side, limited to March building consents out of New Zealand and April’s AIG Manufacturing Index numbers out of Australia, with the RBA’s interest rate decision and release of the rate statement the main event of the morning.

For the Kiwi Dollar, building consents surged by 14.7% in March, following February’s upwardly revised 6.4% increase. The stats had a muted impact on the Kiwi Dollar, which has been under the cosh as the markets get hawkish ahead of tomorrow’s FOMC.

The Kiwi Dollar moved from $0.70345 to $0.70341 upon release of the figures, before rising to $0.7036 at the time of writing, up 0.01% for the day.

For the Aussie Dollar, the AIG Manufacturing Index slipped from 63.1 to 58.3 in April, the stats coming out ahead of the RBA’s monetary policy decision.

  • Five of the seven activity sub-indexes expanded in April, but at a slower pace than in March, though new orders, production and sales held above 60, supporting a positive outlook for growth over the near-term.
  • The exports sub-index contracted, with employment slowing in the month.
  • Six of the eight sub-sectors reached record highs in trend terms.
  • Input prices slipped, while holding above 60, with the wages sub-index also easing, while holding above the long-run average.
  • While input prices and wages were on the softer side, selling prices were on the rise, providing some hopes of a pickup in inflationary pressure following the disappointing 1st quarter numbers.

The Aussie Dollar moved from $0.75297 to $0.75341 upon release of the figures, the softer headline figure having a muted impact with new order and production figures continuing to point to positive growth outlook.

The RBA held rates unchanged as had been forecasted, with the tone of the rate statement the key driver for the Aussie Dollar this morning.

Key points from the rate statement included:

  • Inflation remains low and in line with the Bank’s expectations and likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing.
  • Bank expects growth to pick up to average over 3% in 2018 and 2019, which should reduce some spare capacity in the economy.
  • While business conditions are positive and non-mining business investment is on the rise, uncertainty over the outlook for household consumption remains, in spite of a pickup towards the end of last year.
  • Household income has been growing slowly and debt levels are high.
  • Employment has grown strongly over the last 12-months, and while the pace of hiring has slowed in recent months, forward looking indicators continue to point to solid growth ahead, though wage growth is expected to remain low for a while yet.

The Aussie Dollar moved from $0.75391 to $0.7542 upon release of the statement, recovering from an initial dip to $0.75327, the statement painting a positive outlook for the economy.

The Day Ahead:

For the EUR, there are no stats scheduled for release, with the markets closed for Labour Day, leaving market sentiment towards monetary policy divergence to provide direction in what is likely to be a thin day on the trading side, the only upside for the EUR at present being rumblings over the U.S pulling out of the Iran nuclear agreement.

At the time of writing, the EUR was down 0.02% to $1.2075, with $1.19 levels on the horizon should the FED deliver a hawkish outlook on Wednesday.

For the Pound, economic data scheduled for release includes April’s manufacturing PMI. Following a disappointing 1st quarter, the markets will be looking for private sector PMI numbers to bounce back to support a 2nd quarter rebound, any soft numbers likely to weigh further on the Pound, ahead of the key service sector PMI number on Thursday.

At the time of writing, the Pound was down 0.01% to $1.3761, with sentiment towards monetary policy and the British government’s Brexit woes pinning back any recovery. April’s PMI numbers could see a shift in sentiment towards policy, but the numbers are going to have to be impressive to have any influence on the BoE.

Across the Pond, stats out of the U.S include the market’s preferred April ISM manufacturing PMI, together with April’s finalized Markit manufacturing PMI numbers. Forecasts point to a slight softening in the headline ISM number, though nothing to warrant any major concerns or influence the tone of tomorrow’s FOMC statement, barring something dire.

The Dollar Spot Index was up 0.01% to 91.854, with today’s stats and views ahead of tomorrow’ FOMC the key drivers for the day, while the Redbook is also scheduled for release to provide further direction through the day.

Across the border, stats out of Canada include GDP figures together with April’s manufacturing PMI. While an uptick in growth figures will provide support for the Loonie, April’s manufacturing PMI numbers will also be key, with any pickup in wholesale price inflation and positive new order figures a positive for the Loonie this afternoon.

At the time of writing, the Loonie was up 0.15% to C$1.2824, finding support from a pickup in crude oil prices in the early part of the day.