RBA Posts on Forex Blog
RBA: We will Cut Rates Soon
Aug 13, 2008
In their policy statement released last week, the central bank of Australia all but guaranteed a rate cut before the year ends.
Today, they have made it a guarantee.
In a statement before Australian lawmakers, RBA Deputy Governor stated "We cannot wait to see a fall in inflation before we start cutting rates".
The AUD has been hit hard in recent weeks, falling 13 of the past 14 trading sessions and each of the past 7 days.
Like Europe, Australia has seen a sharp reduction in retail sales. While inflation remains considerably high at 4.4%, an interest rate of 7,.25% leaves them room to cut in an inflationary environment.
Helping the RBA's case, the latest Inflation Expectations report drop considerably from 5.9% to 4.9%.
Futures markets are now pricing in a 50bps rate cut in their Sept 2nd policy meeting.
interest rates, AUD, RBA, rate cut, comments
RBA Joins Wait and See Crowd, Holds
Aug 4, 2008
The Reserve Bank of Australia has officially joined the tide of wait and see.
As expected by just about everyone, they held rates steady at 7.25%.
But despite early market anticipations for a rate cut by October, and a slew of negative economic data, their statement remained considerably hawkish.
"The rise in Australia’s terms of trade that is currently occurring is...adding substantially to national income and ability to spend. At the same time, high prices of oil and a range of other commodities have added to global inflationary risks. They are also dampening growth in a number of countries."
Note the 'other countries' comment. Clearly, the RBA remains convinced Australian commodities will remain a source of growth forth foreseeable future.
As most expected, the RBA did caution on growth.
"The evidence is that the tightening in financial conditions, in conjunction with other factors including rising fuel costs, and lower asset values, has restrained demand...credit expansion to both households and businesses has slowed significantly. Surveys suggest a softening in business activity, and there have also been some early signs of an easing in labour market conditions."
Like Europe and so many other countries, the Australians are starting to see signs of a slowing economy. Nevertheless inflation remain s a concern for the short term.
"On balance, however, it is looking more likely that demand will remain subdued, and economic growth will be fairly slow, over the period ahead. Inflation is likely to remain relatively high in the short term, with the CPI affected by high global oil prices. Looking further ahead, inflation in both CPI and underlying terms is likely to decline over time, given the outlook for demand, provided wages growth remains moderate. The Bank’s forecast remains that inflation will fall below 3 per cent during 2010."
Like most of the industrialized world, a conundrum of sorts has formed. Caught between inflation pressures and early signs of a slowing economy, the RBA must wait for a clearing of the economic waters.
Welcome to the world of wait and see Governor Glenn Stevens.
Carry Trade, AUD, Aussie, RBA, Reserve Bank of Australia
Forex Preview August 3 - August 8
Aug 3, 2008
The core theme of the week will be rate decisions from 4 central banks and attached commentary.
Australia and US bank rates are declared on Tuesday.
On Thursday, banks in Great Britain and the Eurozone announce rate decisions.
All 4 banks are expected to remain on hold. The real market movement will come from associated statements
- The Reserve Bank of Australia (RBA) is apt to remain confident in economic growth and focus on inflationary concerns.
- the US FOMC is likely to focus on a struggling economy with inflation a secondary concern that can be dealt with later
- The Bank of England will presumably highlight a faltering economy, indicating rate cuts may be needed sooner rather than later. If their is one bank that surprises with rate movement this week, the BOE will be it with a rate cut.
- The ECB can be a wild card. Inflation remains double their mandate target. Yet, signs of a Eurozone slowdown are spreading like wildfire. With oil pulling back, their is reason to believe Trichet is going to stress a wait and see approach. However, hawkish comments on inflationary concerns remain a possibility.
Aside from the central bank action, markets are also likely to move on unemployment reports out of New Zealand on Wednesday, and Switzerland, Canada on Friday. The New Zealand report is the only significant data coming out on Wednesday, and as such may gain unusual attention.
Three other events to watch for are:
- the US PCE on Monday (I think their is potential for upside surprise).
- Eurozone Retail Sales and US ISM Services ahead of the FOMC rate decision on Tuesday
Sunday August 3
9:30pm Australia House Price Index (expect -1.3% QoQ, 8% YoY)
11pm New Zealand Commodity Price Index
Monday August 4
5am Eurozone PPI (expect 0.8% MoM, 7.9% YoY)
8:30am United States Personal Consumption Expenditure (expect 0.4% MoM, 2.2% YoY)
Tuesday August 5
12:30am Reserve Bank of Australia Rate Decision (expect hold at 7.25%)
4:30am Great Britain Industrial Production (expect 01% MoM, -1.2% YoY)
5am Eurozone Retail Sales (expect -0.6% MoM, -1.3% YoY)
10am ISM Services (expect 51.0 from 48.2, signaling growth)
2:15pm United States Fed Rate Decision (expect hold at 2%)
7pm Great Britain Consumer Confidence
Wednesday August 6
10:35am United States Crude Inventories
6:45pm New Zealand Employment Report (expect 0.2% QoQ, -0.6% YoY)
6:45pm New Zealand Unemployment Rate (expect 3.8%)
Thursday August 7
2am German Trade Balance (expect €15.5 billion)
2:45am French Trade Balance (expect €-4.6 billion)
7am Great Britain Rate Decision (expect hold at 5%)
7:45am European Central Bank Rate Decision
8:30am ECB President Trichet Press Conference
10am US Pending Home Sales (expect -1.3%)
Friday August 8
1:45am Switzerland Unemployment Rate (expect 2.3%)
4am Italy GDP (expect 0.0% QoQ, 0.3% YoY)
7am Canada Unemployment Rate (expect 6.2%)
Bank of England, ECB, European Central Bank, BOE, jobs report, RBA, upcoming reports, Fed, FOMC
Australia Hold Rates at 7.25%
Jun 30, 2008
As was expected, the RBA has held rates steady at 7.25%.
Forex traders are reacting quickly, sending the Aussie down against most of the majors. However, midterm traders need to look at this situation with some consideration.
Yesterday, the TD Securities-Melbourne Institute survey estimated an annual inflation rate of 4.8 %. That is well above the target 2-3% range. Commodity demand from China is likely to continue as their economy is forecast to grow by 10.3% this year.
In the policy statement, the bank noted:
"The rise in Australia's terms of trade that is currently occurring will...add substantially to national income and ability to spend, even with the slowing in global growth to below-trend pace that the Bank is assuming. At the same time, rising prices of oil and a range of other commodities are adding to global inflationary risks."
The minutes from this meeting will be very interesting. One has to wonder how heavily the sharp contraction in PMI (down to the contraction level of 47) factored in their decision.
The full statement:
STATEMENT BY GLENN STEVENS, GOVERNOR
MONETARY POLICY
At its meeting today, the Board decided to leave the cash rate unchanged at 7.25 per cent.
Inflation in Australia has been high over the past year in an environment of limited spare capacity and earlier strong growth in demand. In these circumstances, the Board has been seeking to restrain demand in order to reduce inflation over time.
As a result of earlier decisions by the Board, additional rises in market interest rates and tougher credit standards for some borrowers, there has been a substantial tightening in financial conditions since the middle of last year. Conditions in international financial markets remain difficult, with credit concerns resurfacing in the past month.
The evidence is that the tightening in financial conditions, in conjunction with other factors including rising fuel costs, is working to restrain demand. Indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has weakened significantly. There have also been some tentative signs of an easing in labour market conditions.
The rise in Australia's terms of trade that is currently occurring will work in the opposite direction. It will add substantially to national income and ability to spend, even with the slowing in global growth to below-trend pace that the Bank is assuming. At the same time, rising prices of oil and a range of other commodities are adding to global inflationary risks.
Given the opposing forces at work, considerable uncertainty remains about the outlook for demand and inflation. On balance, while the inflation outlook remains concerning, the Board's assessment continues to be that demand growth will be moderate this year. The most recent flow of information has given additional support to that assessment. Inflation is likely to remain relatively high in the short term, and the CPI will be further boosted in coming quarters by the recent rises in global oil prices. Looking further ahead, inflation in both CPI and underlying terms should decline over time, provided demand continues to evolve as expected.
Weighing up the available domestic and international information, the Board's judgement is that the current stance of monetary policy remains appropriate. The Board will continue to evaluate prospects for economic activity and inflation in the light of new information.
RBA
inflation, interest rates, trade balance, AUD, RBA, Reserve Bank of Australia
Forex Events for June 29 - July 5
Jun 29, 2008
This could be the week the Euro breaks 1.60. A score of data out of Europe, the Thursday's rate decision, and US Non Farm Payrolls could give it the final push.
A list of the forex events likely to move markets this week.
All times listed in eastern standard time.
MoM = month over month
YoY = Year over Year
Monday June 30
4am Eurozone May PPI (expect 0.9% MoM, 6.8% YoY)
4:30am Great Britain May Mortgage Approvals (expect 51k)
5am June Eurozone CPI (expect 3.9% YoY)
5am Italy CPI
Tuesday July 1
12:30am RBA Rate Decision (expect hold w/hawkish statement)
10am US June ISM (expect 49.0)
Wednesday July 2
9:30pm Australian Trade Balance (expect -950 million)
Thursday July 3
1:45am Swiss CPI (expect 0.3% MoM, 3.1% YoY)
7am Bank of England Rates Decision (expect hold)
7:45am ECB Rates Decision (expect 25bps hike, watch commentary)
8:30am US June Non Farm Payrolls (expect -55k)
Friday
US markets closed for holiday
ECB, Euro, interest rates, trade balance, jobs report, RBA, rate hike, upcoming reports
RBA Minutes: Inflation Uncomfortably High
Jun 16, 2008
According to minutes from the June meeting, the Reserve Bank of Australia remains on a hawkish footing. the board highlighted their inflation concern by question "whether, as a result of earlier tightening..financial conditions were exerting an appropriate degree of restraint on demand.".
The Bank indicated that inflation rates are likely to remain above the 2-3 % target band until the end of 2010. Q1 inflation was a whopping 4.2%.
Notably, the minutes did not include a significant line from the May minutes. According to the May minutes, the board had spent considerable time debating a further rate hike.
In early pacific trading the AUDUSD is at 0.94310
inflation, RBA, minutes
Forex Events June 15 - June 20
Jun 15, 2008
Below is a summary of the major forex news of the week.
Cash believes the biggest events may have already occurred - a) the G8 did not intervene in the forex marketplace as some had speculated and b) flooding in the US Midwest has reduced corn and soybean crops significantly (see Bloomberg).
All times listed in eastern standard time
Monday June 16
5am
Eurozone CPI MoM (expect +0.6%)
Eurozone CPI YoY (expect +3.6%)
Eurozone Core CPI YoY (expect +1.8%)
8:30am
US Empire(NY) Manufacturing (expect -1.50
10am
Fed Chairman Bernanke Speaks before Senate
Lehman Brothers Reports Q2 Earnings (Cash expects negative news reminding everyone of last years credit crunch)
1pm
US Fed Lacker Speaks
9:30pm
Bank of Australia Minutes for June
Tuesday June 17
4:30am
UK CPI MoM (expect +0.4%)
UK CPI YoY (expect +3.2%)
UK Core CPI YoY (expect +1.5%)
5:00am
German ZEW Survey
Eurozone Trade Balance for April (expect -1.5 billion)
8:30am
US Housing Starts (expect 980k)
US Building Permits (expect 960k)
Wednesday June 18
4:30am
Bank of England Minutes for June
11am
Morgan Stanley Q2 Earnings
Thursday June 19
4:30am
UK Retail sales YoY (expect 4.1%)
UK Retail Sales MoM (expect -0.1%)
7am
Canadian CPI YoY (expect 1.9%)
Canadian CPI MoM (expect a sizzling 0.6%)
Canadian Core CPI YoY (expect 1.4%)
Canadian Core CPI MoM (expect 0.3%)
10am
US Philly Fed (expect a rise to -11.4)
Bank of England, BOE, CPI, RBA, Reserve Bank of Australia, minutes, upcoming reports, Fed
RBA keeps Rates Unchanged
Jun 2, 2008
Minutes from the RBA meeting last month suggested they might be contemplating a rate hike this month. However, that did not pan out. Many forex traders thought it unlikely after retail sales fell an unexpected 0.2% yesterday .
In comments from the RBA, governor Stevens, credit expansion has "weakended significantly" for households and business. Nevertheless, sentiment remained bullish as price concerns remain a top focus for the RBA. The AUDUSD is down .24% to US 95.47 (2300 pst).
The Royal Bank of New Zealand meets Thursday.
interest rates, RBA, Reserve Bank of Australia
Go Oz! Minutes from May 6 RBA Meeting Sends the Aussie Dollar to 24 Year High
May 19, 2008
The Reserve bank of Australia released their minutes from the May 6th meeting today. During that meeting, they held rates steady at 7,25%. However, the minutes show policy makers spent a great deal of time discussing a further rate hike. Inflation "was uncomfortably high" for many policy makers.
The Australian Dollar is up 12.8% vs the US Greenback so far this year. With an upside bias, and New Zealand falling off the rate hiking bandwagon, the trend may continue. According to Okasan Securities, the Aussie currency has broken a trendline from 107.87 (Oct 31) - 99.84 (May 7), suggesting a move to as much as 100.35.
Read more at Bloomberg
AUD, Aussie, RBA, Reserve Bank of Australia
