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Today’s RBA holds market focus, with markets split over rate cut

Ian Dobbs

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Over the past few days the Australian Dollar has benefited from some positive sentiment, rallying the AUD across the board to reach to reach an eight week high of 0.7010 against the greenback. This week’s Reserve Bank of Australia is the main event on the Australian economic calendar publishing today at 4.30pm NZT. Market analysts seem to be split as to if Lowe will cut or keep the cash rate at its historical low of 1.25%. Certainly markets have had plenty of reasons to expect a cut but we are not so sure. The main RBA’s communication around employment has been clear with recent data showing a rise to 5.2% alarming analysts with the RBA looking for improvements to around 4.5%. Lowe said recently the June cut wouldn’t be enough to shift the current growth path with a cut today perhaps already been decided weeks ago. If we see a cut this will take the cash rate to 1.0% – fast running out of room for further cuts if the economy really turns pear shaped. On the flip side, a pause will allow for a more gradual cutting cycle, however with domestic and global growth forecasts to remain slow we will get ongoing debate as to further cuts, which could possibly lead to the RBA introducing unconventional monetary measures such as quantitative easing. Building Approvals and Retail Sales print later in the week and could shift the AUD.

New Zealand

the New Zealand Dollar has continued to push higher, earning the tag of most improved player of the week, with it outperformed all major currencies. With risk markets improving the kiwi gained to 72.65 or 2.5% against the safe haven Japanese Yen and 2% in the US Dollar ahead of the Friday close. This week’s economic docket is light with only (NZIER) NZ Institute of Economic Research –  Business Confidence the focus. That survey was released this morning and it printed at a 9 year low. This makes another interest rate cut at next month’s RBNZ meeting almost certain. In this environment the NZD should struggle to make further significant gains. US and Chinese officials look to have finally shaken hands at the G20 meeting over the weekend with Trump agreeing to halt a further trade war escalation by re kindling positive negotiations. The Global Dairy Auctions are Wednesday with projections we could get a similar poor result to last fortnight (-3.8%) on the index.

United States

The G20 meeting in Osaka, Japan turned out to be a non-event generally. President Trump and Xi Jinping met as predicted, where they had in Trump’s own words “an excellent meeting”. The US have agreed to not levy the remaining few hundred Billion or so left on Chinese products. Trump said talks were back on track with meeting outcome going as good as it could have. President Trump also meet with the Korean leader Kim Jun Un who agreed on Sunday to push ahead with productive talks in efforts to make the Northern Korean Peninsula Nuclear free. Kim said a good relationship between the two leaders would produce productive results. US Manufacturing figures released a touch better than forecast, but down on the prior month. Later in the week we have Non-Farm Payroll and US unemployment in focus.


European Central Bank’s Mersch spoke over the weekend citing global risks and market weakness. But, despite the escalating trade dispute between US and Chinese officials the global economy continues to grow, although at a snail’s pace. If we look at recent incoming economic data published in the Eurozone especially first quarter data has been generally better than expected with GDP increasing by 0.4% q/q boosted by domestic demand. Furthermore, GDP is forecast to grow in 2019 and has been revised higher with the outlook for 1.4% in 2020 and 2021. Labour remains robust with unemployment at 7.6% in April, the lowest it’s been since 2008. The ECB expects to leave policy as it is until midway through 2020. This week we have nothing on the Euro calendar.

United Kingdom

The UK Current Account widened by 6.3B to 30B over the first quarter 2019, the highest rate since 2016 and the fifth highest on record as a percentage of GDP. The rise was boosted by imported unspecified goods, mostly gold rather than balance sheet weakening. In the race for the next Prime Minister Boris Johnson is again causing a stir, after re-confirming where he stands. He wants to remove the UK from the European Union on the 31st of October 2019 with or without a deal, which is probably why the polls have the latest odds with Johnson’s lead narrowing. With 5 hustings events wrapped up 11 remain as the two contenders head to Northern Ireland. Economic data this week will focus on Services PMI Wednesday.


Currency investors lost interest in the Japanese Yen last week as the currency was sold off across the board on better than predicted market sentiment. Over the weekend talks at the Osaka based G20 between Trump and Xi Jinping continued after a lengthy standoff with both agreeing fresh discussions went well, China avoiding Trump’s threats to increase tariffs further for now. We expect positive risk sentiment to continue with the major currencies to make further gains against the Yen, equity and commodity markets have started the week posting gains supporting risk. Monday mornings Tanken report for second quarter 2019 Manufacturing printed worse than expected, the report is a good guide to GDP growth at it measures sentiment over all size companies. The Japanese Govt may now go ahead with their planned tax hike in October.


Canadian monthly GDP for April didn’t disappoint after it printed at 0.3% Friday after expectations of 0.2% bought the Loonie back in favor. The Canadian economy grew by 0.3% which was the second strong reading in a row suggesting the recent economic slowdown is ending. The Bank of Canada which has often said that the economy will rebound from recent sluggish activity posed by crude oil prices and weak household spending, may be right. The proof in the pudding will come from the next inflation report on the 17th of July. This week’s Trade Balance followed by employment figures will grab most of the attention with the unemployment rate expected to drop from the current 5.4%. Crude Oil has continued its recent rally with price now just below 60.00 per barrel. This week we could see a continuation of the Loonie rally to retest 1.3140 against the US Dollar.

Major Announcements last week:

  • RBNZ keeps the cahs rate unchanged at 1.50%
  • G20 meeting highlighted with Trump and China trade truce
  • UK Current Account prints well boosting the pound
  • Canadian GDP m/m prints up at 0.3% from 0.2% expectations
  • Chinese Manufacturing shows a modest fall in production

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