Australian Dollar Turns Lower as RBA Rate Cut Speculation Builds

2015-10-16 05:35:00

Talking Points:

Australian Dollar Drops as RBA Rate Cut Probability Rises to Six-Week High
New Zealand Dollar Corrects Downward Despite Upbeat Third-Quarter CPI
Euro May Fall if CPI Revision Bolsters ECB Stimulus Expansion Speculation

The Australian Dollar underperformed in overnight trade amid growing speculation that an RBA interest rate cut is on the horizon. Indeed, prices slid alongside a parallel drop in Australia’s front-end yields. Traders now price in a 62 percent probability of a 25 basis point reduction in the benchmark cash rate at next month’s policy meeting. That amounts to the highest conviction in on-coming easing in six weeks.

The New Zealand Dollar likewise faced selling pressure despite an upbeat set of third-quarter CPI figures. The benchmark year-on-year inflation rate printed at 0.4 percent, topping economists’ forecasts calling for a 0.3 percent result. The release initially sent the Kiwi higher alongside front-end bond yields as traders pared back RBNZ rate cut bets. The move fizzled quickly however, giving way to corrective selling following yesterday’s outsized rally. As we noted at the time, the surge probably reflected a response to comments from RBNZ Governor Graeme Wheeler that seemed to suggest the central bank is in no hurry to ease further.

The final set of September’s Eurozone CPI figures headlines the economic calendar in European trading hours. The core year-on-year inflation rate is expected to be confirmed at 0.9 percent. While ECB President Mario Draghi said the existing QE effort of €60 billion/month in asset purchases has “surpassed [policymakers’] initial expectations” – seemingly dismissing the likelihood of stimulus expansion in the near term – the markets seem dubious. Indeed, money markets appear to be hinting at a further deposit rate reduction. Such speculation may be amplified if CPI is revised lower, weighing on the Euro.

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Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
21:45	NZD	CPI (QoQ) (3Q)	0.3%	0.2%	0.4%
21:45	NZD	CPI (YoY) (3Q)	0.4%	0.3%	0.4%
00:30	AUD	RBA Financial Stability Review	-	-	-

European Session

GMT	CCY	EVENT	EXP	PREV	IMPACT
06:00	EUR	EU27 New Car Registrations (SEP)	-	11.2%	Low
09:00	EUR	Eurozone Trade Balance SA (AUG)	22.1B	22.4B	Low
09:00	EUR	Eurozone Trade Balance NSA (AUG)	20.0B	31.4B	Low
09:00	EUR	Eurozone CPI (MoM) (SEP)	0.2%	0.0%	Medium
09:00	EUR	Eurozone CPI (YoY) (SEP F)	-0.1%	-0.1%	Medium
09:00	EUR	Eurozone CPI Core (YoY) (SEP F)	0.9%	0.9%	Medium