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1 Jul 2014
Busy day ahead, RBA main focus - Westpac
FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, reviews the busy calendar for this Tuesday, with the RBA monetary policy decision, garnering most of the attention.
Key Quotes
There is again no tension over the RBA’s decision on the cash rate (2:30pm Syd/12:30pm Sing/HK) but the statement’s language is becoming increasingly sensitive for markets. The confident tone of early 2014 has waned, with more caveats over the ability of the Australian economy to generate growth to replace the trend decline in mining investment. Most notably, in the June minutes, low interest rates were still seen as working but “it was difficult to judge the extent to which this would offset the expected substantial decline in mining investment and the effect of planned fiscal consolidation”.
The other focus will be on AUD, after a little more concern was evident in the June statement: “The exchange rate remains high by historical standards, particularly given the further decline in commodity prices.” We suspect AUD emerges at best flat from the statement, with risks of a 40-50 pip fall on stronger language on the currency or hints of openness to another rate cut. Ahead of the meeting, markets price -8bp by Dec.
Asia's calendar highlight is the official China manufacturing PMI for June (11am Syd/9am local). Consensus is 51.0 vs 50.8 in May. This would be a high since Dec 2013 but obviously implying only moderate growth. Of less interest is the final reading on the smaller HSBC PMI survey, due 45 min later, with expectations for no revision to the 50.8 flash estimate.
For Asia, the weaker USD trend could see USD/CNY/CNH break below 6.2000 in a definitive way today. Any upside surprise on the China PMI would only reinforce this bias. Focus will also be on the extent to which the USD/CNY fix is moved lower today. Indonesia data will also be in focus but how much follow through selling we see in USD/IDR 1 month remains to be seen, particularly after yesterday's sharp fall. USD/KRW looks to have broken into a new lower range, with the 1000 level now in sight.
The Bank of Japan Tankan survey will be released at 9:50am Syd/8:50am local. Our forecast is that Q2 will be slightly weaker than Q1 (+15 vs +17 on large manufacturers), but that for large manufacturers, exports are firming and PMIs have been more resilient than expected. Large non-manufacturers should be able to look through much of the kneejerk reaction after the consumption tax hike.
PMI and employment data from Europe are due. We are expecting a slight downward revision to the Eurozone final factory PMI. German unemployment change is expected to be -10k, after May saw the first rise in 6 months, while EZ unemployment is also forecast to be a little lower.
Our forecast for the US June ISM manufacturing that it will be slightly lower than last month, at 55.0 vs 55.4, while the market consensus is 55.9. Regional data has been mixed; May construction spending should be up, with residential upswing led by multiples.
Key Quotes
There is again no tension over the RBA’s decision on the cash rate (2:30pm Syd/12:30pm Sing/HK) but the statement’s language is becoming increasingly sensitive for markets. The confident tone of early 2014 has waned, with more caveats over the ability of the Australian economy to generate growth to replace the trend decline in mining investment. Most notably, in the June minutes, low interest rates were still seen as working but “it was difficult to judge the extent to which this would offset the expected substantial decline in mining investment and the effect of planned fiscal consolidation”.
The other focus will be on AUD, after a little more concern was evident in the June statement: “The exchange rate remains high by historical standards, particularly given the further decline in commodity prices.” We suspect AUD emerges at best flat from the statement, with risks of a 40-50 pip fall on stronger language on the currency or hints of openness to another rate cut. Ahead of the meeting, markets price -8bp by Dec.
Asia's calendar highlight is the official China manufacturing PMI for June (11am Syd/9am local). Consensus is 51.0 vs 50.8 in May. This would be a high since Dec 2013 but obviously implying only moderate growth. Of less interest is the final reading on the smaller HSBC PMI survey, due 45 min later, with expectations for no revision to the 50.8 flash estimate.
For Asia, the weaker USD trend could see USD/CNY/CNH break below 6.2000 in a definitive way today. Any upside surprise on the China PMI would only reinforce this bias. Focus will also be on the extent to which the USD/CNY fix is moved lower today. Indonesia data will also be in focus but how much follow through selling we see in USD/IDR 1 month remains to be seen, particularly after yesterday's sharp fall. USD/KRW looks to have broken into a new lower range, with the 1000 level now in sight.
The Bank of Japan Tankan survey will be released at 9:50am Syd/8:50am local. Our forecast is that Q2 will be slightly weaker than Q1 (+15 vs +17 on large manufacturers), but that for large manufacturers, exports are firming and PMIs have been more resilient than expected. Large non-manufacturers should be able to look through much of the kneejerk reaction after the consumption tax hike.
PMI and employment data from Europe are due. We are expecting a slight downward revision to the Eurozone final factory PMI. German unemployment change is expected to be -10k, after May saw the first rise in 6 months, while EZ unemployment is also forecast to be a little lower.
Our forecast for the US June ISM manufacturing that it will be slightly lower than last month, at 55.0 vs 55.4, while the market consensus is 55.9. Regional data has been mixed; May construction spending should be up, with residential upswing led by multiples.