In a surprise move Tuesday, the RBA left its cash target rate unchanged at 4.25%. With expectations, and pricing, firmly looking for a 25bp cut, the AUD shot higher across the board.
In the accompanying statement the RBA acknowledged European risks were still skewed to the downside with economic conditions weakening since the last meeting. It judged policy as appropriate for the moment, with rates for borrowers close to the medium-term average, but said a softening in demand and inflation would provide room for a rate cut in the future.
On China, RBA noted growth had moderated, as expected, but most indicators remained robust in H2. The AUD’s strength was mentioned but not seen as a reason to cut, with the decline in the EUR a major factor to its benefit. The bills market sold off all the 18bp that was priced in beforehand and Asia was left looking to buy dips for the rest of the session.
Rumours also circulated that the next allocation for new Yuan loans from the PBOC (due for release in the February 11-15 window) would not be as high as expected. The latest survey showed expectations of a jump to Yuan 1.0 tln from Yuan 640.5 bln in December, with chatter suggesting a number closer to Yuan 700-800 bln. This lent a soft tone to Shanghai equities (down almost 2%) and as a consequence forced a brief, mild dip in risk-associated currencies. Other bourses remained just in the black, however, and limited the fallout.
Japan’s Ministry of Finance released details of its intervention activity in the fourth quarter and it revealed that, in addition to the lump of over ¥8 tln used on October 31 2011 (previously announced but the quantum was unknown), the MOF embarked on an addition ¥1+ tln worth of unannounced, or “stealth” intervention through to November 4th.
Overnight in the UK, BRC retail sales were slightly better than expected but showed UK retailers suffering their second-weakest January sales since 1995. The biggest decline was seen in January 2010. Like-for-like sales fell 0.3% y/y versus an expected 0.8% fall and follow December’s Christmas-linked +2.2%. Details showed falling sales in the home accessories, near-zero growth in clothing and sharply lower food sales (note the report measures sales by value, so heavy discounting is likely a major factor).
The EUR was pushed around In the European session Monday as Greek talks/meetings were announced/postponed with the net effect being nothing resolved. The uncertainty remains but currencies retraced almost back to yesterday’s Asian opening levels. Better than expected German factory orders failed to lift the EUR as Greek efforts to meet Troika demands for cuts/austerity seemingly went round in circles. The demands from the Troika as a condition for funding the EUR 130 billion include private sector wage cuts – for example, a 20% reduction in the minimum wage, budget cuts and a 15% cut to supplementary pensions.
The AUD was a slight under-performer ahead of today’s expected 25bp rate cut from the RBA with weaker commodity prices affecting the rest of the commodity space. The CAD’s softness was tempered somewhat by a strong Canadian PMI reading – up to 64.1 from 63.5 with 59.7 expected. UK house prices outperformed expectations, extending the recent run of better-than-expected data releases.
Data Highlights
GE Dec. Factory Orders out at +1.7% m/m, flat y/y vs. 1.0%/-0.4% expected and -4.9%/-4.3% prior resp.
CA Jan. Ivey PMI out at 64.1 vs. 59.7 expected and 63.5 prior
NZ Q4 Avg. Hourly Earnings out at flat q/q vs. +0.5% expected and 1.3% prior
AU Jan. AiG Performance of Construction out at 39.8 vs. 41.0 prior
JP Jan Official Reserve Assets out at $1306.7 bln vs. $1295.8 bln prior
UK Jan. BRC Like-for Like Sales out at -0.3% y/y vs. -0.8% expected and +2.2% prior
AU RBA leaves Cash Target Rate unchanged at 4.25%
Upcoming Economic Calendar Highlights
(All Times GMT)
JP Leading/Coincident Index (0500)
Sweden Budget Balance (0830)
Norway Industrial Production (0900)
GE Industrial Production (1100)
CA Building Permits (1330)
US Fed’s Bernanke to testify to Senate Budget Committee (1500)
US IBD/TIPP Economic Optimism (1500)
US JOLTs Job Openings (1500)
US Consumer Credit (2000)
Andrew Robinson
SAXO BANK