Aussie Steadies
The Australian dollar consolidated overnight in the wake of Tuesday’s surprisingly-aggressive 50 bp cut by the RBA. A slight upward revision to the private sector PMI out of China helped steady the ship, but memories of the RBA’s move were too fresh to allow AUDUSD to mount a significant recovery. It is hard to see investor confidence in the currency returning ahead of the upcoming quarterly Statement of Monetary Policy which is due on Friday. The scale of the RBA’s move has raised fears that the inflation and growth forecasts could be revised down quite sharply, potentially opening the door for further cuts. Reassurance is certainly needed on both fronts. Meanwhile in the US, the manufacturing ISM index rose to 54.8 in April from 53.4 (cons: 53.0) boosting USDJPY in particular and sending it back above 80.00. The survey showed broad based growth with stronger new orders, production, employment, supplier deliveries and exports but a slight drop in construction and public sector spending. The rise in the employment index is inline with the regional manufacturing reports and our US economists think this points to a decent increase in manufacturing hires in Friday’s payrolls report. Fed speakers kept the newswires busy with Fed Presidents Kocherlakota, Fisher and Lockhart sounding generally against any further easing (as their voting record last year might have predicted). Even Charles Evans, a notable dove, acknowledged that inflation risks today are higher than they were a year ago. UK Manufacturing PMI fell to a headline reading of 50.5 after a downwardly revised 51.9 (52.1) in April. Most of the components of the report were weak with new orders at the lowest levels since November and exports at the lowest level since May 2009. Ahead today, we have PMI numbers due across Europe and BoE Governor Mervyn King is speech.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank