RBA Hold Back the Aussie, as Brexit Continues to be in Focus

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side once more. 1^st quarter consumer sentiment figures out of New Zealand and 4^th quarter house price figures out of Australia provided direction early on.

Outside of the numbers, the RBA released its monetary policy meeting minutes from 5^th March. The minutes provided little direction for the Aussie Dollar.

For the Kiwi Dollar,

The Westpac 1^st quarter consumer sentiment index fell from 109.10 to 103.8. According to the Westpac McDermott Miller Survey,

• The present conditions sub-index fell from 111.5 to 107.6, with the expectations index falling from 107.5 to 101.3.
• Sentiment towards the current financial situation deteriorated from -4.2% to -8.3%. Sentiment towards the expected financial situation also deteriorated, falling from 0.5% to -6.5%.
• Consumer sentiment towards the 1-year economic outlook eased from 18.1% to 15.4%. For the 5-year economic outlook, sentiment eased from 18.1% to 15.4%.
• Sentiment towards spending also softened. A net 23.4% of respondents thought it was a good time to purchase a major household item, down from 27.3%.

The Kiwi Dollar moved from $0.68544 to $0.68538 upon release of the figures. At the time of writing, the Kiwi Dollar stood at $0.6861, up 0.12% for the session.

For the Aussie Dollar,

4^th quarter house prices fell by 2.4%, quarter-on-quarter. The fall comes off the back of a 1.5% decline in the 3^rd quarter of last year. According to the ABS,

• Melbourne and Sydney continued to lead the decline in property prices. Prices in Sydney were down by 3.7% in the quarter, while prices in Melbourne were down by 2.4%.
• Tightening credit supply and a decline in demand from buyers added increased pressure on house prices in the larger markets.
• Through 2018, residential property prices fell by 5.1% in the 4^th Prices in Sydney fell 7.8%, with prices in Melbourne falling by 6.4%.

From the RBA,

The RBA Monetary Policy Meeting Minutes revealed that:

• Global economic growth was above trend in 2018, though had slowed in the 2^nd half of the year and into 2019.
• Slowing growth in China and ongoing trade tensions had led to lower growth in global trade. This continued to be a source of uncertainty for the outlook for global growth.
• Domestically, there was tension between ongoing improvement in labor market data and a slowdown in momentum of output growth in H22018.
• Private sector wage growth had picked up in the 4^th quarter, aligned with the Bank’s forecasts.
• The outlook for business investment and spending on public infrastructure had remained positive.
• An increase in growth in household disposable income is expected to support growth in consumption.
• Falling house prices, low growth in household income and high debt levels contributed to uncertainty over the outlook for consumption growth.
• Dwelling investment is likely to weigh on growth over the forecast period.
• While the labor market had tightened, less progress had been made on inflation.
• Members noted that significant uncertainties around the forecasts remained, with there being scenarios where an increase in the cash rate would be appropriate at some point and other scenarios where a decrease in the cash rate would be appropriate.
• The probabilities around these scenarios are more evenly balanced than they had been in 2018.
• Members noted that it would be appropriate to hold the cash rate steady while new information became available that could help resolve the current tensions in the domestic economic data.

The Aussie Dollar moved from $0.70960 to $0.70999 upon release of the data and minutes. At the time of writing, the Aussie Dollar stood at $0.7106, up 0.03% for the session.

Elsewhere,

At the time of writing, the Japanese Yen was up 0.19% to ¥111.22 against the Dollar, which continued to struggle early on.

The Day Ahead:

For the EUR

Economic sentiment figures out of Germany and the Eurozone and Eurozone wage growth figures will be the key driver for the EUR.

Forecasts are mixed for the EUR. Economic sentiment is expected to improve in Germany. However, sentiment in the Eurozone is forecasted to weaken further. Wage growth could partially offset any negative effects on the EUR, however, if wage growth gathers pace.

While we would expect Germany’s economic sentiment figures to be the key driver, risk sentiment will continue to influence throughout the day.

The markets will also continue to look at ahead to tomorrow’s FOMC economic projections release and respond to any updates on trade and Brexit.

At the time of writing, the EUR was up 0.11% at $1.1349.

For the Pound,

January’s average earnings and unemployment rate are due out alongside February’s claimant count. We can expect the Pound to be particularly sensitive to the wage growth and claimant count figures on the day.

In spite of the sensitivity, the focus remains on the Pound, leaving any material moves in the Pound short-lived.

Uncertainty over whether a 3^rd vote will take place this week gripped the Pound on Monday. We can expect pressure to persist until there is greater clarity on what lies ahead. The threat of member states voting against an extension leaves the prospect of a no-deal Brexit on the table.

At the time of writing, the Pound was up by 0.20% to $1.3281.

Across the Pond

After a quiet start to the week, January factory order figures will provide the Dollar with direction later in the day. While forecasts are Dollar positive, we would expect any upside to be limited. Sentiment towards tomorrow’s FOMC economic projections is negative and will likely pin back the Dollar on the day.

Further progress on trade talks would also weigh on the Dollar through the day.

Support could come from a pickup in geopolitical risk, however. Brexit uncertainty remains, which could drive demand for U.S Treasuries.

At the time of writing, the Dollar Spot Index was down by 0.13% to 96.403.

For the Loonie

It’s a quiet day on the economic calendar. With no material stats scheduled for release, market risk sentiment will be the key driver through the day.

The Loonie was up 0.04% at C$1.3329, against the U.S Dollar, at the time of writing.