The RBA Holds as Focus Shifts to Economic data from the UK and the U.S

It was a positive start to the day for riskier assets, with positive sentiment towards trade talks driving the majors. Economic data is in focus later today.
Bob Mason
The Reserve Bank of Australia Sydney New South Wales Australia

Earlier in the Day:

It was a busy day on the economic calendar through the Asian session this morning.

Economic data included October Service sector PMI numbers out of China and October BRC Retail Sales Monitor numbers out of the UK.

On the monetary policy front, the RBA also delivered its November interest rate decision and rate statement.

On the geopolitical risk front, chatter on trade provided support for riskier assets in the early part of the day.

Following talk of the U.S administration planning to issue licenses to U.S firms to sell to Huawei Technologies, there was also some chatter of pulling back on tariffs.

Out of China

The Caixin Services PMI fell from 51.3 to 51.1 in October. Economists had forecast a rise to 52.8. Supported by a pickup in manufacturing sector activity, however, the composite PMI rose from 51.9 to 52.0, its highest level since April.

According to the October Survey,

  • Activity in the services sector expanded at a slower pace. By contrast, manufacturing sector activity rose at the fastest pace since December 2016.
  • The Services Business Activity Index eased from 51.3 to 51.1 in the month. This was reportedly the slowest increase in activity in 8-months.
  • New order growth in the manufacturing sector rose at its fastest pace since January 2013. For service sector firms, new orders rose at a more modest rate and at its slowest pace since February.
  • At the composite level, new order growth held steady at September’s 19-month high.
  • Export orders rose, in the manufacturing sector, for the first time since May. Supported by a modest increase across the service sector, new export orders rose for the 1st time in 3-months at the composite level.
  • Employment across the manufacturing sector fell in October, however, with the rate of job shedding the quickest in over a year.
  • At composite level, employment fell for the first time in 3-months, supporting a pickup in outstanding work.
  • Outstanding business at the composite level increased at its quickest pace since March 2011.

The Aussie Dollar moved from $0.68794 to $0.68852 upon release of the figures, which preceded the RBA’s interest rate decision.

For the Aussie Dollar

The RBA held rates unchanged at 0.75%, which was in line with market expectations.

According to the RBA Rate Statement,

  • The outlook for the Australian economy is little changed from 3-months ago.
  • The Centralia scenario is for the economy to grow by around 2.25% this year and then gradually pick up to around 3% in 2021.
  • Uncertainties domestically continue to be driven by the outlook for consumption. A sustained period of modest increases in household disposable income continues to weigh on consumer spending.
  • Other uncertainties include the effects of the drought and the evolution of the housing construction cycle.
  • Employment has continued to grow strongly and has been matched by strong growth in labor supply.
  • Unemployment is expected to remain at around 5.25% for some time before falling to sub-5% in 2021.
  • Wage growth remains subdued and is expected to remain at current levels for some time yet. A pickup is needed for inflation to sustainably move within the 2-3% target range.
  • Established housing market conditions continue to show signs of improvement, while new dwelling activity continues to decline.
  • The easing of monetary policy since June is supporting employment and income growth and a return of inflation to the medium-term target range.
  • It is reasonable to expect that an extended period of low-interest rates will be required for Australia to reach full employment and achieve the inflation target.
  • The Board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.

The Aussie Dollar moved from $0.68864 to $0.68879 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.26% to $0.6902.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.21% to ¥108.81 against the U.S Dollar, while the Kiwi Dollar was up by 0.11% to $0.6409.

Risk-on sentiment through the session provided direction for the pair early on.

The Day Ahead:

For the EUR

It’s a quiet day ahead on the economic calendar. There are no material stats due out of the Eurozone to provide direction for the EUR.

A lack of stats leaves the EUR in the hands of geopolitical risk and influence of corporate earnings on risk sentiment.

At the time of writing, the EUR was down by 0.04% to $1.1124.

For the Pound

It’s a relatively busy day ahead on the data front. October’s Services PMI and Composite PMIs are due out later this morning.

We can expect the Service PMI to have an impact on the Pound, with forecasts Pound positive.

Earlier in the day, the UK’s BRC Retail Sales Monitor rose by 0.1% in October, year-on-year, partially reversing a 1.7% slide from September.

At the time of writing, the Pound was up by 0.01% to $1.2885.

Across the Pond

It’s a busy day ahead on the economic calendar. Key stats include September trade data, finalized Service Sector, and Composite PMI numbers and the markets preferred ISM Non-Manufacturing PMI.

We can expect the ISM Non-Manufacturing PMI to have the greatest influence on the day.

Barring dire numbers, we can expect the JOLTs job openings for September to have a muted impact following the nonfarm payroll figures. Quit rates would need to avoid a sizeable fall, however.

The Dollar Spot Index was up by 0.10% to 97.601 at the time of writing.

For the Loonie

It’s another quiet day on the economic calendar. There are no material stats due out of Canada later today.

A lack of stats continues to leave the Loonie in the hands of market sentiment towards trade and influence on crude oil prices.

The Loonie was down by 0.03% to C$1.3155, against the U.S Dollar, at the time of writing.

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