The RBA Cuts Rates as Trump Talks of Tariffs on EU Goods

Earlier in the Day:

Economic data through the Asian session was on the lighter side in the early hours of this morning.

2^nd quarter business confidence and May building consent figures out of New Zealand provided the Kiwi Dollar with direction.

Outside of the stats, the Aussie Dollar was also in focus, with the RBA interest rate decision and rate statement influencing the Aussie Dollar.

For the Kiwi Dollar

The NZIER Quarterly Survey of Business Survey (QSBO) showed that a net 31% of businesses expect a deterioration in general economic conditions in the coming months. The increase in pessimism from 28% to 31% left business confidence at its lowest level since March 2009. According to the survey,

• Confidence amongst manufacturers fell to its lowest level since December 2008. Over half of those surveyed expect conditions to deteriorate in the coming months.
• Overall sentiment towards profitability fell to its lowest level since March 2011, whilst profitability improved in some sectors.

The Kiwi Dollar moved from $0.66708 to $0.66750 upon release of the figures that preceded building consent figures.

Building consents jumped by 13.2% in May reversing a 7.9% slide in April.

According to NZ Stats,

• A total of 3,687 new homes were consented in May, which was the largest number of new homes consented since May 1974.
• A sizeable increase in the number of multi-unit home consents was attributed to the monthly surge.

The Kiwi Dollar moved from $0.66753 to $0.66760 upon release of the figures. At the time of writing, the Kiwi Dollar was up 0.12% to $0.6680.

For the Aussie Dollar

The RBA cut its cash rate by 25 basis points to 1%, which was in line with market expectations. It was the 2^nd consecutive monthly cut in cash rates. Salient comments from the rate statement included:

• Over the 1^st quarter, the Australian economy grew at a below-trend 1.8%, weighed by an extended period of low-income growth and falling house prices.
• The outlook for consumption continues to be the main domestic uncertainty. A pick-up in household disposable income is expected to support spending, however.
• Employment conditions have continued to be strong, though spare capacity persists, with the unemployment rate up to 5.2%.
• Overall wage growth remains low in spite of a pickup in wage growth in the private sector.
• Inflationary pressures remained subdued but are expected to pick up.
• Housing market conditions remain soft, though there are some signs of stabilization in both Sydney and Melbourne.
• Credit conditions, particularly for small and medium-sized, businesses, remain tight.
• The decision to cut rates further was made to support a further fall in spare capacity and to drive inflation to target.
• The RBA will continue to monitor labor market conditions and adjust policy if needed to support sustainable growth.

The Aussie Dollar moved from $0.69742 to $0.69861 upon release of the rate statement. At the time of writing, the Aussie Dollar was up by 0.29% to $0.6986.

For the Japanese Yen

At the time of writing, the Japanese Yen was up by 0.04% to ¥108.41 against the U.S Dollar.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead on the economic data front.

German retail sales figures are due out of the Eurozone today. With the Eurozone reliant upon domestic consumption to support economic growth, the EUR will respond to the numbers.

Outside of the stats, expect plenty of influence from any chatter on trade or any rise in tensions in the Middle East.

At the time of writing, the EUR was down by 0.12% to $1.1285.

For the Pound

The UK construction PMI is due out later this morning. We can expect the Pound to largely ignore the numbers barring particularly dire figures.

Brexit and the leadership race will continue to be the key driver for the Pound.

At the time of writing, the Pound was down by 0.03% to $1.2627.

Across the Pond

It’s a quiet day ahead on the economic calendar.

With no material stats due out of the U.S, the Oval Office and market sentiment towards FED monetary policy will provide direction.

FOMC members Williams and Mester are due to speak later in the day. Any chatter on monetary policy will influence.

Will the FED need to pull back from talk of a rate cut later in the year? A lot of hope has been placed on a resolution to the U.S – China trade war to reignite the U.S economy. Trump will need to hold back from shifting focus to the EU at a minimum assuming that the trade war with China comes to an abrupt end. Both assumptions could are perhaps wishful thinking…

At the time of writing, the Dollar Spot Index was down by 0.02% to 96.828.

For the Loonie

There are no material stats due out of Canada.

The lack of stats will leave market risk sentiment to provide direction on the day. Any further chatter from the Oval Office or Beijing on trade will also need to be considered along with updates on Iran…

The Loonie was up by 0.06% to C$1.3127, against the U.S Dollar, at the time of writing.