RBA Spikes the Aussie Dollar, with Geo-Politics to Drive the Majors

Earlier in the Day:

Economic data released through the Asian session this morning was limited to the UK’s August BRC retail sales monitor and 2^nd quarter current account figure out of Australia.

Outside of the data, the RBA held rates unchanged, with the release of the rate statement providing some forward guidance on policy going into next year.

For the Aussie Dollar, the current account deficit widened from a revised A$11.7bn to A$13.5bn, the deficit larger than a forecasted A$11.5bn, according to figures released by the ABS.

• The 2^nd quarter widening was attributed to an increase in the net primary income deficit, which widened by A$1,102m to A$15,934m in the 2^nd

The Aussie Dollar moved from $0.71968 to $0.71985 upon release of the figures, which came ahead of the RBA’s interest rate decision and rate statement.

On the policy front, the RBA held rates unchanged at 1.5%, which was in line with market expectations. Salient points from the rate statement included:

• Uncertainty regarding the global outlook stems from the direction of international trade policy in the U.S.
• Some lenders have increased mortgage rates by small amounts, though rates are lower than a year ago.
• Australian economy is forecasted to average a bit over 3% in 2018 and 2019, with first half of 2018 growth estimated to have been above trend.
• Uncertainty remains over household consumption, attributed to slow growth in household incomes and high debt levels.
• Drought has led to difficult conditions in parts of the farm sector.
• Aussie Dollar remains with range, while depreciating against the U.S Dollar and most other currencies, supporting terms of trade.
• Outlook for labour market remains positive, with the unemployment rate expected to be at around 5%, with wage growth expected rise gradually.
• Central forecast inflation to be higher in 2019 and 2020.
• Housing market conditions have eased further in Sydney and Melbourne.
• The low level of interest rates is continuing to support the economy, with further progress in reducing unemployment and having inflation return to target expected, though the process is expected to be gradual.

The Aussie Dollar jumped from $0.7193 to $0.72164 upon release of the statement, leading the Aussie Dollar up 0.07% for the session.

Elsewhere, the Japanese Yen was down 0.07% to ¥111.15, while the Kiwi Dollar was down 0.03% to $0.6599, with a lack of data or direction from the U.S overnight leaving the markets on the defensive through the session.

In the equity markets, it was a mixed start to the day, with the Hang Seng finding much needed support after 3 consecutive days in the red, while the CSI300, Nikkei and ASX200 all saw red, the ASX200 leading the way with a 0.43% loss at the time of writing.

The Day Ahead:

For the EUR, economic data scheduled for release through the morning are limited to unemployment figures out of Spain, and wholesale price inflation figures out of the Eurozone.

The stats are unlikely to have a material impact on the EUR, with trade chatter likely to provide direction through the day, any negative chatter a negative for the EUR, the U.S returning from the Labour Day holiday, while Italian budget chatter may also influence, the government due to prepare and release its Economic and Financial document this month.

While the ECB is looking to bring the Asset Purchasing Program to an end, the Italian government is looking to loosen the purse strings at a time when Italian growth forecasts have weakened, leading to a jump in Italian government bond yields.

It will boil down to how far the coalition government will go on trying to get away with breaking EU rules all of which could lead to the coalition reigniting talks of leaving the EUR, highlighting EU laws on deficits and funding as a hindrance to the Italian people and economy.

At the time of writing, the EUR was down 0.13% to $1.1604, with geo-politics to be the key driver through the day.

For the Pound, economic data due out through the morning is limited to August’s construction PMI that will have some influence on the Pound, though any updates on Brexit will likely overshadow the morning’s number.

Outside of the data, BoE Governor Mark Carney will be discussing monetary policy and inflation in the early afternoon, the markets looking for any clues on whether the BoE will be looking to make another move before Brexit day next March.

Earlier in the day, the BRC Retail Sales Monitor showed that sales rose by just 0.2%, following July’s 0.5% rise.

The Pound moved from $1.28723 to $1.28703 upon release of the figures, before easing to $1.2865 at the time of writing, down 0.04% for the session, with focus being on Brexit and Carney.

Across the Pond, Private sector PMI numbers are scheduled for release this afternoon, the markets favoured ISM manufacturing PMI due out, along with finalized Markit manufacturing PMI figures, while car sales figures will be released later in the day.

While the ISM numbers will be the key driver, with focus likely to be on the new order sub-index, we can expect some trade chatter from the U.S to also provide direction for the Dollar, Trump having given a 6^th September deadline for businesses to respond to the next set of tariffs on Chinese goods.

On the policy front, FOMC member Evans is scheduled to speak after the stats, any talk on policy also expected to influence, though much will depend on the data released.

At the time of writing, the Dollar Spot Index was up 0.09% to 95.228.

For the Loonie, with no material stats scheduled for release focus will remain on the BoC interest rate decision tomorrow and sentiment towards Canada being able to successfully retain membership in NAFTA.

At the time of writing, the Loonie was down 0.08% to C$1.3105 against the U.S Dollar, with Trump trade talk to provide direction through the day.