The Australian Dollar climbed yesterday upon news that RBA governor Glenn Stevens was in favour of holding the official cash rate target steady at 2% when the board meets next on December 1st.
The Aussie dollar was little changed at 0.7265 U.S. cents at 8am this morning after jumping 0.9 percent the day before. The currency has climbed against all its major developed peers since Oct. 30 and is poised for its first back-to-back monthly gains since June 2014.
In an address to business economists Tuesday evening Stevens stated “he happened to agree” with the argument for holding the cash rate steady. Offering a broadly positive assessment of the domestic economy, Stevens indicated that signs are already pointing towards the start of a general pick-up in growth. When directly questioned about further rate cuts Stevens said “I’m more than content to lower it if that actually helps, but is that the best thing to do at any particular time?” “We’ve got Christmas. We should just chill out, come back and see what the data says.”
The Australian dollar jumped back towards four week highs following the address, despite weaker data and lower commodity prices. The Aussie’s strength was surprising given a further fall in the benchmark price of iron ore and weaker than expected construction data released by the the Australian Bureau of Statistics yesterday.
Felicity Emmett, co-head of Australian economics at ANZ Bank, pointed towards “a few crucial events for policy” scheduled over the holiday period to keep the RBA in the office and away from the beach.
These include the outcome of the US central bank policy meeting on December 17 – when the Federal Reserve is widely expected to lift rates – the next two Australian labour force reports and the December quarter consumer price inflation data, due January 27.
Bond market pricing shows only a 6 per cent chance of a rate cut next week, suggesting traders were already factoring in a very low probability of an RBA move. The probability of a 25-basis-point rate cut by the end of May was 41 percent on Wednesday, according to a Bloomberg survey. At the end of last month, traders had priced in an 84 percent chance of at least one cut by May and about a 50 percent chance of two reductions.
Later today Private Capital Expenditure (CAPEX) is expected to show a fourth-consecutive decline in investment levels last quarter. The survey will look at the first quarter of the 2015-16 financial year as well as providing an update on investment plans for the next 12 months. This result will keenly watched as a key indicator for next week’s economic growth figures. ANZ Research is forecasting that businesses’ estimates of total capital expenditure will be in the order of $120 billion, or a decline of 18 per cent, for the upcoming year.
The remainder of the week is pretty quiet both on and off-shore. Thursday is Thanksgiving in the US and the only interesting highlight might be the UK’s financial stability report. Friday it’s Japan with CPI and the unemployment rate along with household spending. Consumer confidence is out in the UK along with house prices and Q3 GDP.