RBA Minutes Weigh on the AUD, with UK Inflation and Carney to Drive the Pound

Earlier in the Day:

Macroeconomic data out of the Asian session this morning was limited to New Zealand’s 3rd quarter inflation figures, which were better than forecasts, easing some pressure on the Kiwi Dollar, though the numbers were certainly well below Q3 estimates released in August, where the annual rate of inflation had been estimated at 2.1%.

The RBNZ has shifted its stance on monetary policy, with concerns over a softening in inflation coupled with negative trade terms from a stronger Kiwi Dollar weighing. While this morning’s figures may be a positive for the RBNZ, how the Kiwi Dollar performs in the coming weeks will be a consideration for the RBNZ and much of that will likely depend on with whom NZ First Party decides to form a government with.

The Kiwi Dollar moved from $0.7190 to $0.71933 upon release of the data, before easing back to $0.7165 at the time of the report, as the markets wait on to see which way the NZ First Party Board will swing.

For the Aussie Dollar, the RBA meeting minutes were also released this morning, the AUD having been hit by the more dovish than expected statement released earlier in the month.

Key points from the minutes include:

  • The RBA is in no particular hurry to lift rates and has no intention of following other central banks, where monetary policy easing through and beyond the global financial crisis was considered to be far more significant than the RBA’s easing.
  • Rising energy costs have been absorbed into margins rather than being passed through to final prices, with recent data pointing to subdued price pressures, suggesting that any necessary move to curb inflationary pressures remains unwarranted.
  • Aussie Dollar appreciation is expected to contribute to subdued price pressures, with any further appreciation in the Aussie Dollar likely to lead to a slower pickup in economic activity and inflation than currently forecasted.
  • Concerns over household debt were raised once more, with the RBA noting household sensitivity to rising interest rates and, despite a positive view on the domestic economy, this concern alone will more than likely leave the RBA in a holding pattern over the near-term.

The Aussie Dollar moved from $0.78450 to $0.78406 upon release of the minutes, which come in the wake of the RBA’s financial stability report released late last week, where the RBA had also raised concerns over the possible effects of interest rate hikes on household disposable incomes, particularly with wage growth continuing to lag behind the rate of increase in household debt.

Following another record run across the major U.S indices, it was another risk on day for the markets, with the Nikkei, ASX200, CSI300 and Hang Seng making further ground, as the markets look ahead to Xi Jinping’s opening speech at the first day of China’s National Party Congress tomorrow.

How China intends to move forward over the next five years will certainly be a key driver this week, with Xi Jinping’s speech expected to outline whether the Chinese government will continue to support growth or pull back the reigns and look to consolidate.

Asian equities certainly seemed more interested in the record closes over in the U.S than what’s to come.

The Day Ahead:

For the day ahead, there’s certainly plenty to consider, with macroeconomic data out of the UK kicking things off, September’s inflation figures likely to stir the Pound, with the annual rate of inflation expected to hit to 3%.

There’s been little sign of respite in UK inflationary pressure, with any upticks in the Pound seemingly short lived, which may leave the BoE with little choice but to deliver on its suggestion of a rate hike in the coming months.

BoE Governor Carney is scheduled to speak later in the morning, as Carney delivers testimony to the House of Commons Treasury Committee. Earlier in the year, Carney had justified a hold on monetary policy, in spite of surging consumer prices, over near-term negative projections for labour market conditions that have yet to materialize.

With tomorrow’s employment numbers scheduled for release and Thursday’s retail sales figures, a hawkish Carney and some positive numbers this week will certainly be bullish for the Pound, though there is the EU Brexit Summit to consider later this week, EU Commission President Juncker having been rather scathing on progress to date.

At the time of writing, the Pound was up 0.02% at $1.3254, with Carney likely to have the final say on the Pound ahead of tomorrow’s employment numbers.

Across the Channel, macroeconomic data out of the Eurozone includes the ZEW’s October Economic Sentiment figures for Germany and the Eurozone together with the Eurozone’s finalized September inflation numbers. Draghi had only just echoed Yellen’s outlook on inflation and a likely pickup in the near-term, so while core inflation is expected to continue to fall well-short of the ECB’s objective, hopes will be of a near-term pickup that could force the ECB to rethink its asset purchasing program plans for next year, the leaked information having weighed on the EUR at the start of the week.

Adding pressure on the EUR will be the Spanish government’s extended deadline to Catalan President Puigdemont until Thursday to clarify whether independence has been declared. Monday’s deadline passed with the Puigdemont remaining silent through the day in defiance. The invoking of Article 155, which will remove certain Catalan government powers could well be the final outcome, which would more than likely result in further unrest across Spain and not only impact the EUR but the Eurozone’s 4th largest economy that has been recovering well through the year.

At the time of writing, the EUR was down 0.24% at $1.1768, with today’s figures and of course, German Chancellor Merkel’s progress on coalition talks also key to direction through the day.

Across the Pond, the Dollar found its feet late in the day on Monday as news hit the wires of Trump’s interview with Stanford University economist John Taylor, who was said to have impressed. Taylor is perhaps the most hawkish of the candidates at present, though perhaps of greater importance was an announcement that the U.S President would meet with current FED Chair Yellen to discuss the possibility of serving running for a second term.

While focus will continue to be on the FED Chair interviews and the U.S Administration’s tax reform plans, macroeconomic data out of the U.S this afternoon is limited to September’s import and export price index and industrial production figures, which are forecasted to be Dollar positive.

There have been few disappointing stats out of the U.S of late, with inflation having been the negative from a FED policy perspective. FOMC voting member Harker speaking late in the day could provide some direction for the Dollar, while Draghi is also scheduled to speak after the closing bell.

At the time of writing, the Dollar Spot Index was up 0.08% at 93.383.