AUDUSD: RBA SOMP HIGHLIGHTS - NFP GUIDANCE FROM HERE
The RBA was relatively neutral on the margin, keeping their inflation targets the same at 1.5-2.5. However, unfortunately for aussie shorts the RBA didnt offer any forward guidence on sentiment towards further easing, or specific reference to the aussie FX level - despite there being a strong bid bias brewing in the aud$ cross post-25bps cut. Also their forecasts for underlying inflation imo were quite positive at 1.5% vs 1.0% currently - this infers the RBA perhaps even thinks that the 1.5% rate will be sufficient to reach their inflation target, and that another cut this year isnt being thought about given they predict on target inflation with current policy. Although this does then run the downside risk of inflation staying low (as i expect) which may force the RBAs hand to cut again at years end if inflation is below 1.% or another print that misses the 1.5% expected mark.
At these levels aussie looks attractive on the offer with a 0.74xx target - however USD supply has been strife since last week when rate expectations sold off amid poor GDP print to just p12% in september - down from 25% earlier in the week.. this week failed to improve, with little impetus for this to be the case, though the greenback now looks to NFP today for guidance. A beat/ firm print should help aussie offer well at these levels given we are right at the double top 0.766 level, so any USD strength arising from the NFP print has a bias to see AUD$ move lower, though as the macro landscape questionably is changing, it is uncertain if it will be enough to surpress yield seekers demand for aussie deposits for long/ a sustained period (if at all), which is expecially odd since we saw the rate brought down this week whihc should have set a bearish tone for the week, as we have seen with the BOE and GBP. After NFP we will have a clearer view.
From here i think aussie positioning should be sidelined until the NFP print is clear - a miss and i actually think Aussie is better to trade bid, with 0.78 a firm target. A NFP hit and that should offer aussie lower, though for some reason I see the risk asymmetrically skewed to aussie topside, given the very week reaction to what is/ should be the biggest fundamental driver possible - a rate cut. So much of this trade is being vigilant - an NFP miss, buy a 0.766 confirmed breakout, a NFP hit - ensure AUD$ is trading with a clear bid bias.. any 10-30pips movement lower will not suffice at these levels, aussie is still likely bidding.
RBA Minutes Highlights:
- Underlying Inflation To Remain Under 2% For Much Of Forecast Period, Reach 2 % By End 2018
- Prospects For Economy Positive, But Low Inflation Allows For "Even Stronger Growth"
- Judged Risks Associated With Rising House Prices And Debt Had Diminished
- A$ Remains Significant Source Of Uncertainty For Inflation, Growth Forecasts
- Economic Growth And Inflation Forecasts Little Changed Overall
- Forecasts Underlying Inflation 1.5% By End 2016, 1.5-2.5% End 2017, 1.5-2.5% End 2018
- Forecasts GDP Growth 2.5-3.5% End 2016, 2.5-3.5% End 2017, 3-4% End 2018
- Says Unemployment To Fall Only A Little Out To 2018, Employment Growth To Be Modest This Year
- Drag On GDP From Falling Mining Investment Looks To Have Peaked, Non-Mining Still Subdued
- Dwelling Investment To Stay Strong For Next Year Or So, But Raises Risk Of Oversupply
- GDP Growth Looks To Have Moderated In Q2 As Net Exports Added Less
- Wage Growth Expected To Remain Low, Rise Modestly Out To 2018
- Increasing Supply, China Steel Cutbacks To Put Downward Pressure On Iron Ore Prices
- Growth In China Expected To Slow Gradually Over Next Few Years, Housing A Risk
- Brexit To Have Limited Effect On Australia's Major Trading Partners
At these levels aussie looks attractive on the offer with a 0.74xx target - however USD supply has been strife since last week when rate expectations sold off amid poor GDP print to just p12% in september - down from 25% earlier in the week.. this week failed to improve, with little impetus for this to be the case, though the greenback now looks to NFP today for guidance. A beat/ firm print should help aussie offer well at these levels given we are right at the double top 0.766 level, so any USD strength arising from the NFP print has a bias to see AUD$ move lower, though as the macro landscape questionably is changing, it is uncertain if it will be enough to surpress yield seekers demand for aussie deposits for long/ a sustained period (if at all), which is expecially odd since we saw the rate brought down this week whihc should have set a bearish tone for the week, as we have seen with the BOE and GBP. After NFP we will have a clearer view.
From here i think aussie positioning should be sidelined until the NFP print is clear - a miss and i actually think Aussie is better to trade bid, with 0.78 a firm target. A NFP hit and that should offer aussie lower, though for some reason I see the risk asymmetrically skewed to aussie topside, given the very week reaction to what is/ should be the biggest fundamental driver possible - a rate cut. So much of this trade is being vigilant - an NFP miss, buy a 0.766 confirmed breakout, a NFP hit - ensure AUD$ is trading with a clear bid bias.. any 10-30pips movement lower will not suffice at these levels, aussie is still likely bidding.
RBA Minutes Highlights:
- Underlying Inflation To Remain Under 2% For Much Of Forecast Period, Reach 2 % By End 2018
- Prospects For Economy Positive, But Low Inflation Allows For "Even Stronger Growth"
- Judged Risks Associated With Rising House Prices And Debt Had Diminished
- A$ Remains Significant Source Of Uncertainty For Inflation, Growth Forecasts
- Economic Growth And Inflation Forecasts Little Changed Overall
- Forecasts Underlying Inflation 1.5% By End 2016, 1.5-2.5% End 2017, 1.5-2.5% End 2018
- Forecasts GDP Growth 2.5-3.5% End 2016, 2.5-3.5% End 2017, 3-4% End 2018
- Says Unemployment To Fall Only A Little Out To 2018, Employment Growth To Be Modest This Year
- Drag On GDP From Falling Mining Investment Looks To Have Peaked, Non-Mining Still Subdued
- Dwelling Investment To Stay Strong For Next Year Or So, But Raises Risk Of Oversupply
- GDP Growth Looks To Have Moderated In Q2 As Net Exports Added Less
- Wage Growth Expected To Remain Low, Rise Modestly Out To 2018
- Increasing Supply, China Steel Cutbacks To Put Downward Pressure On Iron Ore Prices
- Growth In China Expected To Slow Gradually Over Next Few Years, Housing A Risk
- Brexit To Have Limited Effect On Australia's Major Trading Partners
