RBA Minutes Peg Back the AUD, with the EUR and USD in Focus Today

Earlier in the Day:

The AUD pulled back from intraday highs through the Asian session, following the release of the RBA minutes, which coincided with 2^nd quarter house price figures, weighing on the AUD.

The minutes were relatively upbeat on the labour market, corporate profits and trade terms, whilst continuing to highlight subdued inflation as an issue, with continued concerns over rising household debt, and doubts over a pickup in wage growth held back expectations of a near-term move on rates.

We have seen speculation over a possible near-term move provide AUD strength of late, with RBA Governor Lowe having also talked up the Australian economy and the need to begin shifting on monetary policy in recent weeks.

For now the markets have priced in a first rate hike for August of next year.

The AUD eased back from $0.79895 to $0.7974 upon release of the minutes and house price figures, with house prices having risen more than had been forecasted in the 2^nd quarter, up 1.9% versus a forecasted 1.1%, while price gains were softer than the 1^st quarter’s 2.2% gain.

While the RBA was relatively upbeat on the economy, equity markets were mixed through the Asian session, with the Nikkei playing catch up following Monday’s holiday, surging 1.96% by the close to 20,000 levels for the first time since early August, supported by the weaker Yen. The ASX200, the Hang Seng and CSI300 were in the red however, with focus shifting to tomorrow’s FOMC meeting and release of its economic projections and a possible announcement of the FED kicking off the sell down of its balance sheet.

Mixed sentiment through the session saw the Dollar recover from early losses against the Yen, up 0.17% against ¥111.76 at the time of writing.

The Day Ahead:

Stats through the European session are on the lighter side this morning, limited to September’s ZEW economic sentiment numbers out of Germany and the Eurozone. Based on forecasts, the figures should be EUR positive, with the markets now likely to begin monitoring Merkel’s path to a 4^th term as Chancellor, with the German Election coming up this weekend.
It’s been pretty quiet on the election front, with many now seeing little chance of a Merkel loss, the Chancellor recovering from a speed bump earlier in the year, with the CDU/CSU holding a sizeable lead and expected to get through the 24^th relatively unscathed.

Looking across to the Pound, the Pound managed to steady following Monday’s slide, which came in response to BoE Governor’s less hawkish than had been anticipated outlook on monetary policy, the BoE Governor having advised that any increases in UK interest rates in the coming months would be gradual and limited. The Pound had fallen to $1.34 levels following Carney’s comments at the IMF, while managing to recover to $1.35 levels in the early trade this morning.

With European stats on the lighter side, focus will shift across the Pond this afternoon, with stats scheduled for release out of the U.S on the heavier side, including August import and export price figures and housing sector data. Based on forecasts, the stats are Dollar positive, though direction through the day will not just be hinged on the data, as the markets begin to look ahead to tomorrow’s FOMC.

Expectations are for the FED to begin selling down the balance sheet, with the FOMC economic projections also likely to garner significant attention following last week’s uptick in inflation. There are some doubts over whether the near-term effects of Hurricanes Harvey and Irma will cause the FED to hit the pause button through the remainder of the year, which would certainly hurt the Dollar. The Dollar Spot Index was down 0.25% at 91.820 at the time of the report.

There are unlikely to be any major moves in favour of the Dollar ahead of tomorrow’s FOMC, with plenty of unknowns ahead of the FOMC’s press conference, release of economic projections and monetary policy decision.