RBA To Cut Next Week
The latest batch of Australian economic data overnight confirmed that non-mining sectors of the economy continue to lose momentum. As a result, our Australia economics team now thinks the RBA will lower the cash rate by 25 bp on Tuesday, and are still looking for a total of 50 bp of easing by August. The euro meanwhile managed to stabilize – it seems investors are now questioning the merits of holding on to a bearish directional view over the next 48 hours in the face of unpredictable month-end flows today and the payrolls report on Friday. The remote possibility of ECB President Draghi hinting at a future policy response in today’s parliamentary testimony may also have helped arrest the euro’s descent for now. EURUSD risks would still appear to be skewed to the downside in our view given the concept of Eurozone bonds is still facing stiff resistance from Germany and the Netherlands; and the political and practical hurdles to any euro-wide bank recapitalisation scheme are significant. Indeed no material policy decisions seem likely ahead of the Greek election on June 17, portending more nervous trading in the interim. The Greek election itself is still too close to call, but the resilient public support for SYRIZA should continue to weigh on the euro. Of the three polls released on Wednesday, one showed SYRIZA in the lead over the New Democracy (30.0% vs 26.5%), another showed a dead heat (at 24.5%), and the third put the New Democracy on top, albeit by a slim margin (23.4% vs 22.1%). GBPUSD remains under pressure, as BoE data confirmed another month of net outflows from overseas gilt investors and the Bank’s Chief Economist Dale highlighted the risks to the UK economy from the Eurozone crisis. The yen continues to sport a firm profile, with Deputy Governor Yamaguchi’s claim that the domestic economy is in better shape than expected further dampening expectations of bolder BoJ action. Japan’s Vice Finance Minister Nakao served reminder of the intervention threat, reinforcing our view that yen bulls will still have more room to run on the crosses than USDJPY.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank