The Week Ahead: What a difference a week makes!
Although the RBA is probably not feeling quite so excited by the AUD’s rapid rise against the USD late last week. Opening this week above 0.74 USD was probably not on the RBA’s wishlist. This is the highest level since July 2015 and an almost 10% jump from the depths of the 0.6827 USD level seen in the early part of the year.
Only a short while ago RBA officials were happy to state – via personal opinions only of course! – that a rate of 0.65 USD would be a very happy place for the AUD. It will be interesting now to see if RBA spokesmen are happy to reiterate their preferred trajectory for the AUD as a direct response to the unexpected move higher. This also now possibly brings into play the opportunity for an interest rate cut on the agenda but the stronger economic data could be a spanner in the works on this front. It is a relatively quiet economic data week in Australia this week so RBA Deputy Governor Lowe’s speech on Tuesday will likely be heavily scrutinized.
After the RBA kept interest rates on hold on Tuesday the AUD surged on a mixture of strong fourth quarter GDP data and strengthening commodity prices in the latter part of the week. It was not just local data that spurred the AUD on with the US Non-Farm Payrolls figure and accompanying average earnings data in late US trade also helping the AUD’s rise. Despite the new jobs data exceeding market expectations in the US, average hourly income tailed off marginally and the AUD took full advantage.
After manufacturing sales data is released in New Zealand on Tuesday, the RBNZ meeting and announcement on Thursday will be the major focus of the economic week ahead. We are anticipating that interest rates will be kept on hold at this week’s meeting.
According to the Chinese National Development and Reform Commission China is not heading towards a hard economic landing and isn’t weighing heavily on the global economy. Rather, uncertainty and instability on aglobal basis has potential to impact China’s growth. This year an annual growth target range of 6.5% to 7% has been announced at the annual national parliament rather than a specific hard target.
The Chinese government’s proposed spending surge to stimulate growth was not as aggressive as many were anticipating with a budget deficit of 3% of GDP appearing to be the proposed target. Key economic data from China this week includes Trade Balance, inflation and new loans. Announcements from China’s annual national parliament sitting will also emerge throughout the week ahead.
The ECB is again due to meet this week and the announcement in the early hours of Friday morning (AEST) will be eagerly anticipated. GDP data for the euro zone will be released on Tuesday alongside the ECOFIN Meetings taking place. Britain’s possible exit from the EU continues to draw comment from numerous vested interests and will no doubt remain a major talking point all the way to the referendum in June.
The German finance minister is the latest to weigh in with his opinion claiming that a Brexit would be disastrous for the UK, EU and global economies for a number of years. The ongoing political machinations and manouevreings of all sides of the debate will no doubt remain a constant presence over the next few months. Accusations of political intereference have already emerged and are unlikely to abate.