Standing steady down under
Overnight the Reserve Bank of Australia held policy rates as was widely expected. The rally in the AUD however has come following a statement from the central bank that seems it’s happier than could be expected when looking through the news from China and the global economy.
The policy statement from the central bank was broadly unchanged since last month’s and hints that that the Reserve Bank of Australia is comfortable with the current stance of policy. This is an obvious positive for risk assets in the short term but any rally will come under considerable pressure if the data from China does not improve anytime soon.
It is still our belief that further weakening of the AUD is due this year as it remains the Reserve Bank of Australia’s favourite way of loosening financial conditions within the country. We are still waiting also to see whether the Turnbull leadership will allow for the kind of changes and reforms that the Australian government needs in the longer term.
Trade to also lean on yen
Staying in the East, we are finding more and more reasons why the yen may spend much of Q4 on the back foot. Tonight’s policy meeting has been heralded by some as the start of a new policy response from Japanese authorities given poor inflation dynamics. Yesterday’s Trans-Pacific Partnership trade deal signed with the US adds a little more spice.
This deal is not popular in Japan and political moves to counter any ill feeling towards the Abe government will involve fiscal and monetary stimulus. Let’s wait and see what happens tonight at the Bank of Japan meeting but the cards are stacked for a lower JPY moving forward.
It’s going to get worse in Germany
Into Europe, and once again poor news from the German industrial sector has us worried. Factory orders from German manufacturers tumbled by 1.8% in August with companies showing lower demand from China and other emerging markets. Most importantly maybe, these numbers do not include any of the fall-out from the Volkswagen (XETRA:VOWG) diesel fiasco that will land in the September numbers.
The Day Ahead
Mario Draghi, ECB President, speaks in Frankfurt at 6pm BST although we doubt there will be much policy from his speech at an art exhibition.
Trade figures from the US at 3pm this afternoon are likely to be the main movers today with a widening of deficit to $48bn in August expected.