Payrolls Ahead
Eurozone PMIs disappointed again, kicking off another round of moderate euro selling. The flash estimates for April had already been on the soft side when they were released almost two weeks ago, but today’s final figures were even weaker still. Earlier, the RBA’s quarterly Statement on Monetary Policy provided further colour on the decision to cut the cash rate by 50 bp on Tuesday. End-2012 forecasts for both core inflation and GDP were modestly downgraded. This came as a minor relief to FX investors, some of whom had feared such a large rate reduction might need substantial forecast downgrades in order to justify it. AUDUSD climbed 20 pips afterwards but eventually gave back all gains. Our Australia economics team note though that the bank’s assessment of domestic growth now appears to be much less upbeat. They also expect next week’s budget to confirm suspicions that a very significant amount of fiscal drag is in the pipeline over the coming 12 months. Consequently they now expect another 50 bp of RBA by Q3, up from 25 bp previously. They also lower their year-end forecast for AUDUSD to 1.00 from 1.05. The stage is now set for today’s US employment data for April. Here, we would stress that the below-consensus ADP figure of 119k has not altered the above-consensus 170k payrolls forecast of our US economics team. Risks, however, would appear to be skewed to the downside, given the tendency for below-trend April readings in the BLS series with four-week sample periods like this year. Any undershoot on April payrolls compared to the 160k market consensus (89k-210k range), in the context of the weak March results, would certainly put the dollar on the back foot.
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