Australian Dollar Soars as RBA Talks Down Rate Cut Outlook

DailyFX

Talking Points

  • Australian Dollar Rallied as RBA Signaled Rate Cuts Unlikely for Now
  • Downtick on Eurozone PMI Data May Not Meaningfully Hurt the Euro
  • British Pound May Rise as PMI Outcome Boosts BOE Policy Outlook

The Australian Dollar rallied after the RBA opted to keep interest rates unchanged at 2.5 percent, as expected. The catalysts for move higher seemed to emerge from the policy statement accompanying the announcement. RBA Governor Glenn Stevens notably omitted language suggesting the central bank still saw the Aussie as overvalued. He also argued once again that thefull effects of [the easing in monetary policy since late 2011] are still coming through, and will be for a while yet.” As we suggested in our weekly Australian Dollar forecast, this means that while the RBA is in favor of additional accommodation, it believes further support will yet emerge from its prior efforts and doesn’t see a need for new measures. We remain long AUD/USD.

A roundup of Manufacturing PMI data headlines the economic calendar in European trading hours. In the Eurozone, the final revision of September’s reading is expected to confirm flash estimates pointing to a slight slowdown in factory-sector growth. A print in line with expectations (51.1) would fall just a hair below the two-year high (51.4) recorded in August however. Absent a substantial deviation from median forecasts, this seems unlikely to trigger a meaningful re-appraisal of the ECB policy outlook before this week’s interest rate decision. As such, it probably won’t amount to major driver of the Euro.

Meanwhile, the analogous release out of the UK is due to show manufacturing sector activity accelerated for a seventh consecutive month, with the PMI gauge hitting the highest level since February 2011. Investors may interpret such an outcome to mean that robust economic activity will trigger one of the “knockouts” within the BOE policy framework and force the central bank to re-assess its dovish posture sooner than expected. That would bode well for the British Pound and we continue to hold short EUR/GBP.

Later in the day, the spotlight shifts to the US data docket, where the focus will be on ISM Manufacturing report. Economists’ median forecasts call for a bit of deceleration in the pace of sector activity in September. The print comes amid US Dollar selling after Congress failed to reach a budget deal overnight, triggering the first government shutdown in 17 years. Investors appear to be thinking that the sudden retrenchment on the fiscal front may undermine economic growth and delay the Fed’s move to “taper” the size of its QE3 program. Against that backdrop, a soft ISM print stands to reinforce selling pressure on the greenback.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

23:30

AUD

AiG Perf of Manufacturing Index (SEP)

51.7

-

46.4

23:30

JPY

Household Spending (YoY) (AUG)

-1.6%

0.2%

0.1%

23:30

JPY

Jobless Rate (AUG)

4.1%

3.8%

3.8%

23:30

JPY

Job-To-Applicant Ratio (AUG)

0.95

0.95

0.94

23:50

JPY

Tankan Large Manufacturers Index (3Q)

12

7

4

23:50

JPY

Tankan Large Manufacturers Outlook (3Q)

11

10

10

23:50

JPY

Tankan Non-Manufacturing Index (3Q)

14

14

12

23:50

JPY

Tankan Non-Manufacturing Outlook (3Q)

14

15

12

23:50

JPY

Tankan Small Mfg Index (3Q)

-9

-12

-14

23:50

JPY

Tankan Small Mfg Outlook (3Q)

-5

-10

-7

23:50

JPY

Tankan Small Non-Mfg Index (3Q)

-1

-3

-4

23:50

JPY

Tankan Large All Industry Capex (3Q)

5.1%

6.0%

5.5%

23:50

JPY

Tankan Small Non-Mfg Outlook (3Q)

-2

-2

-4

0:00

AUD

RPData/Rismark House Px (MoM) (SEP)

1.6%

-

0.5%

1:00

CNY

Manufacturing PMI (SEP)

51.1

51.6

51

1:00

AUD

HIA New Home Sales (MoM) (AUG)

3.4%

-

-4.7%

1:30

AUD

Retail Sales s.a. (MoM) (AUG)

0.4%

0.3%

0.1%

1:30

JPY

Labor Cash Earnings (YoY) (AUG)

-0.6%

-0.3%

-0.1%

4:30

AUD

Reserve Bank of Australia Rate Decision

2.50%

2.50%

2.50%

5:00

JPY

Vehicle Sales (YoY) (SEP)

12.4%

-

-6.4%

6:30

AUD

Commodity Index

90.2

-

92.9

6:30

AUD

Commodity Index (YoY)

-3.1%

-

-8.6%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:30

CHF

Manufacturing PMI (SEP)

54.9

54.6

Low

7:45

EUR

Italian PMI Manufacturing (SEP)

51.1

51.3

Low

7:50

EUR

French PMI Manufacturing (SEP F)

49.5

49.5

Low

7:55

EUR

German Unemployment Change (SEP)

-5K

7K

Medium

7:55

EUR

German Unemployment Rate s.a. (SEP)

6.8%

6.8%

Medium

7:55

EUR

German PMI Manufacturing (SEP F)

51.3

51.3

Medium

8:00

EUR

Eurozone PMI Manufacturing (SEP F)

51.1

51.1

Medium

8:00

EUR

Italian Unemployment Rate (AUG P)

12.1%

12.0%

Low

8:30

GBP

PMI Manufacturing (SEP)

57.5

57.2

Medium

9:00

EUR

Eurozone Unemployment Rate (AUG)

12.1%

12.1%

Medium

Critical Levels:

CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.3343

1.3430

1.3479

1.3517

1.3566

1.3604

1.3691

GBPUSD

1.5962

1.6063

1.6124

1.6164

1.6225

1.6265

1.6366

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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