The week ended with a bang after the Bank of Japan’s decision to do as little as possible on monetary policy saw the Yen surge 3% to finish at 102. That Yen strength was already causing US dollar weakness but the release of much weaker than expected US second quarter GDP data pushed the dollar lower across the board. The 1.2% print was all about inventories and masked the fact the data showed personal consumption rose 4.2% while elsewhere data showed wages growth was still strong.
US stocks ended mildly higher, the Aussie closed the week at 76 cents and the talk now is of a longer and deeper US dollar reversal.
That sets up an interesting week ahead dominated by RBA and Bank of England decisions, Chinese PMI and trade data with US non-farm payrolls on Friday likely to round out the week with another bang.
A complicating wrinkle for the RBA, Morgan Stanley says the US dollar’s fall has only just begun Here’s something for those who think the RBA should cut rates Tuesday to to lower the dollar. It just might not go down. That’s because there are many drivers of exchange rates but the reality is the US dollar, as the other side of the AUDUSD pair, is one of the biggest.
Writing at AxiTrader in the wake of the Fed announcement last Thursday I wrote that the USD looked set for around a 4% fall. I’m not alone and in the context of a currency-driven RBA decision, Morgan Stanley says the US dollar is set to fall 5% in coming months. Bloomberg reports Hans Redeker, Morgan Stanley’s chief global currency strategist said in a note last week that weak US demand would sap the dollars strength.
Australian Calendar – (courtesy NAB Economics, our emphasis)
Dominating domestically is the RBA Board Meeting Tuesday, Retail Sales Thursday and the RBA quarterly Monetary Statement Friday. Internationally, China’s PMIs are out Monday, then the Japanese Fiscal Stimulus plan Tuesday, and in the US, ISM Manufacturing Monday and Payrolls Friday.
The RBA decision is line ball After last week’s CPI result a few economists changed their call from cut to hold for Tuesday meeting. But the vast majority still think the RBA will move. I was in the camp that they should hold fire but I’ve almost been convinced by what the ANZ’s Joanne Masters had to say in our latest Devils and Details podcast that there is so little risk to a cut that they should just pull the trigger regardless.
But I still have great sympathy for the NAB’s view that they should hold. That is “Last Wednesday’s CPI was ever so slightly above their [the RBA’s] forecast track with some evidence of greater exchange rate pass-through into consumer durables and that the very low Q1 underlying inflation print at just 0.2% is, in hindsight, looking more like an outlier. As a result “NAB expects no change in what will be likely a close decision”.
It really is 50:50.
You can listen in to the show here:
International Calendar (also courtesy NAB Market Economics)
US: the major focus next week is on the ISM manufacturing (Monday), non-manufacturing (Wednesday) as a lead into Friday’s Non-Farm Payrolls. San Francisco Fed President John Williams speaks tonight with Robert Kaplan speaking in Beijing on Tuesday. The June PCE deflators/spending is on Tuesday.
China: Official PMIs and Caixin manufacturing PMI Monday, Caixin non-manufacturing PMI Wednesday, current account balance Thursday.
Euro: July Manufacturing PMIs are due Monday and services PMIs on Wednesday.
UK: The BoE is expected to ease monetary policy on Thursday with the UK’s final July Manufacturing PMI on Monday.
Canada: Quiet until Friday which sees the release of employment,Ivey PMI index and trade data.
NZ: Q2 Labour force (was due Wednesday) now delayed until Aug 17; Labour Cost Index/Quarterly Employment Survey still being released. Some inflation indicators also due, including house prices, global dairy auction, and ANZ commodity price index.
Here is the NAB’s excellent diary of all the key data and events in the week ahead.
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