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RBA Holds on Rates, Focus Shifting to Trump and His Next Trade Target

A mixed start to the day, the effects of the U.S – China trade war evident in the Chinese numbers, while the U.S economy powers ahead.
Bob Mason

Earlier in the Day:

Economic data released through the Asian session this morning was limited to 3rd quarter NZIER business confidence figures out of New Zealand. Outside of the stats, the RBA also delivered its October interest rate decision and rate statement.

For the Kiwi Dollar, business confidence took a turn for the worse for the 3rd quarter, with a net 28% of businesses expecting economic conditions to worsen, the lowest level since March 2009. According to the NZIER’s Quarter Survey of Business Opinion:

  • Firms’ own activity for the September quarter and expectations for the next quarter both fell, pointing to a slowing in economic growth over the 2nd half of the current year. A net 0.4% of firms reported higher demand over the 3rd quarter, the lowest level since September 2012.
  • A net 3% of businesses reduced headcount in the September quarter, the reduction attributed to a deterioration in profitability, with cost pressures weighing and businesses remaining pessimistic about margins and profitability.
  • Manufacturers overtook retailers to become the most pessimistic sector, weaker demand and rising costs leading to a material decline in sector confidence.
  • Rising cost pressures also weighed on building sector confidence, with higher cost pressures and softer demand weighing. On the brighter side, architects’ measure of work in their offices picked up in the pipeline of residential and commercial construction for the year ahead.
  • Businesses rated government policy as having the most influence on their assessment of the general business situation, followed by labour costs and consumer confidence.

The Kiwi Dollar moved from $0.66169 to $0.66068 upon release of the numbers, before recovering to $0.6608 at the time of writing, down 0.12% for the session

For the Aussie Dollar, the RBA held rates unchanged at 1.5% as had been expected, with direction for the Aussie Dollar coming from the RBA’s rate statement. Salient points from the rate statement included:

  • While a number of advanced economies are growing at above-trend rate, growth in China has slowed a little, with authorities easing policy.
  • Ongoing uncertainty regarding the global outlook stems from the direction of international trade policy in the U.S.
  • Latest national accounts confirmed strong economic growth of 3.4% over the last year, with growth forecasted to remain above 3% in for the years 2018 and 2019.
  • Business conditions are positive, with non-mining business investment expected to increase.
  • Higher levels of public infrastructure investment is also supporting the economy, along with growth in resource exports.
  • Uncertainty remains over the outlook for household consumption, with growth in household incomes remaining low and household debt at high levels.
  • Outlook for labour market remains positive, sitting at lowest level in close to 6-years, with wages expected to gradually increase over time, supported by improvement in the economy.
  • Inflation is at around 2% and is forecasted to be higher in 2019 and 2020, while expected to be lower in 2018.
  • Housing sector conditions continued to ease, with rent inflation remaining low.
  • The low level interest rate environment continues to support the economy, with further progress in reducing unemployment and having inflation return to target expected, though gradually.

The Aussie Dollar moved from $0.7228 to $0.72328 on the rate hold and release of the rate statement, easing back from an initial spike to a morning high $0.72379.

For the Japanese Yen, with no material stats released through the session, the closing out of the NAFTA deal eased demand for the Yen through the session, which was down by 0.04% to ¥113.97 against the Dollar at the time of writing.

In the equity markets, the Nikkei continued to find support from the Yen and news of the U.S and Canada finally agreeing on trade terms, the Nikkei up 0.27% at the time of writing, while the ASX200 continued its recent downward trend, weighed by the big-4 banks. For the Hang Seng it was catch up time, the HK markets having been closed on Monday, with a rally in crude oil prices and the NAFTA agreement failing to offset the negative sentiment towards the disappointing private sector PMI numbers out of China over the weekend to leave the Hang Seng down 1.64%.

The Day Ahead:

For the EUR, economic data scheduled for release out of the Eurozone is limited to Spanish unemployment figures that are unlikely to have a material impact on the EUR, with focus remaining on Italy and chatter from the Oval Office on trade terms with the EU likely to come into focus, now that the U.S has wrapped up NAFTA.

At the time of writing, the EUR was down 0.07% to $1.1570, the Italian Budget and noise from the Oval Office expected to influence.

For the Pound, economic data is limited to September’s construction PMI that will provide some direction, the numbers skewed to the negative for the Pound and September house price figures that will likely be brushed aside by the markets. Outside of the stats, Brexit chatter and noise from the Tory Party conference will continue to be in focus ahead of Theresa May’s closing speech at the conference tomorrow.

At the time of writing, the Pound was down 0.05% to $1.3036 with Brexit chatter and noise from the Tory Party Conference the key drivers through the day.

Across the Pond, there are no material stats scheduled for release through the session, leaving the markets to consider the release of the Redbook data later this afternoon.

Outside of the stats, FED Chair Powell and FOMC member Quarles are scheduled to speak through the U.S session, FED Chair Powell having just recently demonstrated his ability to move the Dollar, with today’s topic relating to both inflation and employment likely to garner plenty of interest.

At the time of writing, the Dollar Spot Index was up 0.03% to 95.33, with the Oval Office also there to consider through the day.

For the Loonie, it’s another quiet day on the data front, with no material stats scheduled for release, leaving the Loonie in the hands of sentiment towards BoC monetary policy and direction of crude oil prices, the markets needing to consider the BoC’s next move, now that NAFTA has been wrapped up.

At the time of writing, the Loonie was up 0.08% to C$1.2804 against the U.S Dollar.

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