Stronger Australian Wages
Australian wage growth accelerated to +3.7% y/y (cons. 3.5%) in Q2, which supports the view of our Australian economics team that the RBA are likely to remain on hold for the foreseeable future. We would not recommend positioning for AUDUSD upside on the back of this however – especially given the USDCNY fix continues to drift higher, returning overnight to levels last seen almost 9 months ago. If this trend continues it could soon start to exert downward pressure on the Australian dollar given the currency’s status as a CNY proxy. USDJPY remains elevated in the wake of yesterday’s impressive US retail sales report which showed a 0.8% m/m expansion in July (cons. +0.3%). If US CPI, industrial production, and Empire Manufacturing data due today also indicate a strengthening US recovery this would further undermine the case for QE3 and would likely lead to additional yen weakness. EURUSD remains range-bound as we count down to the Eurogroup and ECB meetings scheduled for the first week of September. Ahead today, the minutes of the BoE’s August meeting are due. No adjustments were made to the policy settings at that meeting, and our UK economist expects the vote split to show unanimity on both rates and the asset purchase programme. Market attention is likely to focus on whether a policy rate cut is becoming more likely – and any dissenting vote in favour of a rate cut would likely trigger a brief bout of sterling weakness.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank