RBA cuts interest rate to historical low. China, UK and US data under-perform. Where is the ray of hope amidst the gloomy skies?
Reserve Bank of Australia (RBA) shocked the market by cutting rates to 1.75%, making it the lowest rate in RBA’s history. The move sent the AUD/USD free-falling for more than 140 pips in the first 30 minutes. The Aussie dollar has appreciated 12% since the start of 2016 and inflation is low. Fed’s persistence in holding off rate hike. Demand in China remains soft, the Caixin Manufacturing PMI came in at 49.4 versus consensus of 49.8. All the above are enough for RBA to justify its decision.
Global Dairy Trade (GDT) index dropped 1.4% after 2 positive months. The New Zealand employment figures showed growth of 1.2%, twice that of what the market expected. However, the unemployment rate went up to 5.7% versus the expectation of 5.5%. With RBA taking the lead, there is a good chance RBNZ will follow to ease soon.
The Sterling has been on a good run since early April. Fed dovishness and lower chance of “Brexit” sent the Sterling higher. Just when the Sterling was on the high, it was dealt a triple whammy. The Manufacturing PMI, Construction PMI and Services PMI came in worst than expected. The Manufacturing PMI dropped below 50 at 49.2, the first time since June 2013. With the “Brexit” referendum less than 2 months away, uncertainties in their political scene and weak economic data is likely to weigh down the Sterling.
NFP printed 160K, missing the consensus by more than 40K. In addition, the previous month’s figure was revised slightly downward. Although the average earnings and unemployment rate held their ground, it is not strong enough reasons for Fed to announce a rate hike in June. Looking at the recent data and situation around the world, a more realistic expectation for the rate hike would be in the last quarter of 2016.
The announcement to watch out for in this week is Bank of England interest rate decision. UK is clearly affected by the global slow down, as seen in their under-performing PMIs last week. Their MPC vote would be something to watch for, as it will tell us the possibility of policy changes in near future.
Our Picks
AUDJPY – Slightly Bearish. AUDJPY has been on a downtrend. Possible to trade along the trend and look for possible entry when prices retrace back up to around 79.70.
NASDAQ – Bearish. Price has broke the 100 day moving average.
EURNZD – Slightly Bullish. RBNZ may follow RBA and become the next central bank to cut interest rate. Possible to look for an opportunity to go Long around 1.6550.
Top News This Week
UK: Official Bank Rate. Thursday 12th May, 7pm.
We expect figures to remain unchanged at 0.5% (previous figure was 0.5%).
New Zealand: Retail Sales q/q. Friday 13th May, 6.45am.
We expect figures to come in at 0.9% (previous figure was 1.2%).
US: Core Retail Sales m/m. Friday 13th May, 8.30pm.
We expect figures to come in at 0.5% (previous figure was 0.2%).
Fullerton Markets Research Team
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