This morning the RBA Governor Glenn Stevens is speaking in Sydney at the Australian Financial Review Banking & Wealth Summit.
After a run of stronger than expected results including Employment figures, Retail Sales and Inflation Data, traders have reduced bets that the RBA’s monetary policy setting committee will ease rates at its May 5 meeting. The expectations for a cut were sitting at 76% on April 15th however as of Monday 27th the expectations are now only 57%.
A recent resurgence in the Iron Ore price which has bounced back to a six week high of $57.00/tonne up from $47.08/tonne on April 2nd has also given the market more confidence that rates will be left on hold at 2.25% when the board meets in May.
With the decision on whether to cut or not “finely balanced”, it would be “important to listen very carefully for hints” from the RBA governor at his speech on Tuesday morning at Summit in Sydney, HSBC Bank Australia chief economist Paul Bloxham said.
“With such a finely balanced decision, the track for the iron ore price could tip the scales for the RBA” in favour of holding rates steady at its next meeting, Mr Bloxham said.
Across in the US, Thursday sees the Federal Reserve meeting to discuss a possible rate increase for this year, however after softer than expected economic data over the past week and a disappointing durable goods result on Friday, economists are not expecting any change to the view that rates will remain on hold for the short term.
The Fed’s hints earlier in the year that rate rises could occur as early as June were based on an assumption, even aspiration, that US inflation would have been higher by now, David Buckle, head of quantitative research at Fidelity Worldwide Investment, said.
“Higher inflation hasn’t materialised due largely to the oil price drop,” he said. “Until they see that inflation, the Fed won’t be inclined to move”.
A delay in a rate rise for the US would provide further support to the AUD which opened the week above 0.78c on the back of the weak US data and higher Iron Ore prices. Again, the hints in the accompanying statement will be highly scrutinised for evidence of a future rate rise.
The AUD/USD exchange rate was trading at 0.7857 at 07:00 AEST this morning.
AUD/GBP faces a big week ahead.
Tonight we will see the release of the UK’s GDP figure at 18:30 AEST. The forecast is that the result will drop from 3% to 2.6% for the first Quarter of 2015. This release along with the UK Consumer confidence should provide some movement for the AUD/GBP exchange rate which is currently trading at 0.5157 at 07:00 AEST.
The true test for the Sterling may ultimately come in the following week as there remains a great deal of uncertainty surrounding the UK Elections, and it remains especially difficult to predict the outcomes of the elections and much less implications for the GBP itself.