Aussie Dollar Gains on Bets Budget to Reduce Scope for RBA Rate Cuts

2015-05-12 06:05:00

Talking Points:

Aussie, NZ Dollars Rise as Markets Await Australian Budget Announcement
British Pound May Not See Follow-Through on Industrial Production Data
US Dollar Looks to Fed-Speak to Drive FOMC Interest Rate Hike Outlook

The Australian Dollar outperformed in overnight trade, rising as much as 0.6 percent on average against its leading counterparts. The move tracked an advance in Australia’s front-end bond yields, pointing to firming RBA monetary policy expectations as the catalyst for the advance. Bets on higher borrowing costs were likewise telegraphed in the equities space, where financial shares led Australia’s benchmark S&P/ASX 200 stock index upward even as most Asian bourses traded lower.

The upward shift in investors’ RBA outlook may reflect pre-positioning ahead of today’s announcement of the federal budget for the fiscal year ending June 2016. A survey of economists polled by Bloomberg projects a deficit of A$40 billion, an increase from a December estimate calling for a short-fall of A$31.2 billion. The budget may mark a departure from a focus on austerity previously championed by Prime Minister Tony Abbott. The markets may have interpreted a turn toward a growth-focused fiscal policy approach as reducing the future need for further easing on the monetary side of the equation.

The New Zealand Dollar likewise advanced, pacing its Aussie counterpart to score an 0.4 percent increase against the majors. Australia is the island nation’s largest trade partner and the prospect of a more accommodative government spending plan may have been seen as underpinning cross-border demand. That in turn could have positive spillover for New Zealand’s own economic growth and possibly limit scope for RBNZ interest rate cuts.

Looking ahead, UK Industrial Production figures lead the data docket in European trading hours. Output is expected post a 0.1 percent year-on-year increase in March, matching the 20-month low recorded in February. While a soft result may weigh against BOE rate hike speculation, follow-through from the British Pound seems unlikely as traders withhold directional commitment ahead of the release of the central bank’s quarterly Inflation Report on Wednesday.

Later in the day, Fed-speak will enter the spotlight as scheduled commentary from New York and San Francisco Fed Presidents Bill Dudley and John Williams (respectively) cross the wires. Both policymakers are currently members of the rate-setting FOMC committee and tend to lean on the dovish side of the spectrum. Rhetoric hinting the Federal Reserve may move relatively slower to issue its first post-QE interest rate hike is likely to weigh against the US Dollar (and vice versa).

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Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
22:00	NZD	ANZ Truckometer Heavy (MoM) (APR)	-0.6%	-	-0.4%
23:01	GBP	BRC Sales Like-For-Like (YoY) (APR)	-2.4%	0.6%	3.2%
23:30	AUD	ANZ Roy Morgan Weekly Consumer Conf	110.6	-	108.7
23:50	JPY	Official Reserve Assets ($) (APR)	1250.1B	-	1245.3B
1:30	AUD	Credit Card Purchases (A$) (MAR)	25.6B	-	22.1B
1:30	AUD	Credit Card Balances (A$) (MAR)	51.5B	-	51.1B
1:30	AUD	Home Loans (MoM) (MAR)	1.6%	1.0%	1.1%
1:30	AUD	Investment Lending (MAR)	6.4%	-	-3.3%
1:30	AUD	Owner-Occupier Loan Value (MoM) (MAR)	1.6%	-	0.6%
2:14	NZD	REINZ House Price Index (MoM) (APR)	0.5%	-	2.1%
2:14	NZD	REINZ House Sales (YoY) (APR)	27.6%	-	20.3%
2:14	NZD	REINZ House Price Index (YoY) (APR)	9.3%	-	8.5%
5:00	JPY	Leading Index (MAR P)	105.5	105.5	104.8
5:00	JPY	Coincident Index (MAR P)	109.5	109.7	110.7

European Session

GMT	CCY	EVENT	EXP	PREV	IMPACT
8:30	GBP	Industrial Production (MoM) (MAR)	0.0%	0.1%	Medium
8:30	GBP	Industrial Production (YoY) (MAR)	0.1%	0.1%	Medium
8:30	GBP	Manufacturing Production (MoM) (MAR)	0.3%	0.4%	Medium
8:30	GBP	Manufacturing Production (YoY) (MAR)	1.0%	1.1%	Medium