Central bank watch: Australia – No compelling reason for the RBA to do anything
Doing nothing appears to be the strategy that offers the RBA the best risk/return. That said, the RBA used this week’s statement to state that it is ready willing and able to ease policy if required.
Rates strategy: Will the RBA start swimming with the global tide?
The RBA has felt the need to swim against the global tide of accommodative monetary policy over the past two years. This week’s RBA board meeting decision statement however appeared to suggest a potential change of heart. Nonetheless, we reiterate our recommendation to “pay front OIS contracts” on a rolling basis.
FX strategy: FX and Global PMIs – Stabilisation fails to bring calm
Global manufacturing PMIs continue to hover around 50, but give markets little comfort about the prevailing downside growth risks on Europe and China. The environment continues to support the USD. We see risky FX (G10 commodity currencies and high beta EM) continuing to struggle, given the limited scope for policy loosening among the major economies (aside from the ECB).
Global synthesis: Still a wide gap
There remains a wide gap between proposals that would be needed to fix the debt crisis in Europe and what is politically feasible in the very near term. Policymakers in core economies are still seemingly unwilling to back plans that could stabilize Europe.
Commodities: Although gold prices are well above the average cash costs of production, mine supply growth remains modest
Spot gold prices have averaged above $1500/oz for the year so far and hit highs above $1900/oz with strong support from the macro environment and investor demand.
Commodities: Domino effect
The base metals have moved quickly to price in downgrades to global growth expectations and the question of how much further prices can fall will undoubtedly dominate discussions during LME week.
Technical analysis
Near-term bounce risk for the AUD especially while the weekly cloud base provides support at 0.9320; we would view strength as a strategic selling opportunity against resistance just above parity.
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ECONOMICS RESEARCH