Key Points Weak Australian CPI suggests RBA will leave policy on hold for now, but tightening bias will remain. Corrective forces grip the AUD and could spread further today. The tone of today's US data (consumer confidence, existing home sales, house prices) will also be significant for the USD in general. UK MPC member testimonies, UK CBI survey and BoC policy announcement also due.
Market Outlook We noted yesterday that it would take a weak Australian CPI number to neutralise the threat of a May rate hike and this duly appeared earlier this morning. If the RBA wants to raise rates they could still rationalise such a move with reference to the robust showings seen in the labour market, retail spending and credit growth, in addition to the fact that core CPI measures remain elevated. However, while a tightening bias will remain in place, the weakness in both PPI and CPI data this week gives them room for manoeuvre, so an unchanged rate decision now looks likely in May. We also noted yesterday that markets were already well positioned for themes such as high-yield over lowyield as well as general USD bearishness and that if any news were to emerge that threatened this consensus, liquidation pressure could set in. This is now the risk with the AUD and a pullback to at least 0.8150 looks likely. Any corrective move could extend close to the recent breakout point at 0.80, although this should provide good support. Resistance is now set in the 0.8280-0.8300 area.
The JPY is generally firmer overnight in response to the position adjustment that followed the Australian CPI data and this may also extend a little further today. Hesitant trading looks likely on the JPY for much of this week, with the market likely to await Friday's CPI and consumer spending data. Any further pullback in the AUD could also weigh on JPY crosses and this will probably be the main focal point today.
The Australian data also seemed to upset EUR-USD a little (reaching as low as 1.3548) although it has since recovered to pre-data levels. 1.3585 is the immediate level of resistance on the topside, while support at 1.3525-50 needs to break to raise the threat of a test of the 1.3460 latest breakout point. With corrective forces in the air, today's US data (see below) may need to be weak to prevent some near-term USD strength. Cable has tested 1.9055 twice overnight and this support level could be broken today to unveil a test of 1.9900-30. The tone of the UK CBI survey (see below) will also be significant for GBP.
Day Ahead UK - MPC members testify about the 'MPC 10-years on', and while much will be said about the MPC's performance and the current situation that faces them (i.e. a 3%-plus CPI rate) few fresh factors are likely to emerge. The market is already discounting a May hike and it seems unlikely that anything will be said that will alter this view. Most interesting perhaps will be the comments from the hawks, Sentance and Besley, who voted for a rate hike earlier this month, before the strong PPI and CPI news was released. There may be some speculation that these two members could vote for a 50bp move in May and while this seems unlikely, their comments will be monitored for any hints on the matter. Because of the MPC testimony, the CBI survey (monthly and quarterly versions) has been put back to a 14.15 release time. In the recent monthly CBI surveys, output, orders and domestic output price expectations have all been firming, with orders the highest since Mar 1995 and price expectations the highest since May 1995. However, the recent quarterly BCC survey seemed to raise some question marks over these findings, so there will be some interest in whether the recent reported strength has been maintained, especially on price expectations.
Canada - the BoC are likely to leave rates unchanged at today's policy announcement but the key focus will be on whether they offer any upgrade to their assessment of inflationary risks given ongoing strength in the labour market. Thursday's Monetary Policy Report will also be watched for the same reasons. A major change of view seems unlikely at the present time.
US - in the US the focus will be on consumer confidence, existing home sales and house prices. The level of house prices has been falling since July and this looks set to continue in the short-term, which will equate to the y/y rate moving further into negative territory. Existing home sales and new home sales have been painting contrasting pictures of the housing market over the past couple of months. Existing home sales have bounced back reasonably well, while new home sales have fallen sharply. The market will be interested in seeing which is telling the most accurate story. Both the main consumer sentiment numbers have weakened over the past month or so, albeit from reasonably good levels, so whether or not this has continued will be a factor.
Diary Data/event BST Consensus*
IT Consumer confidence (Apr) 08.30 112.8 EU Current account (Feb) 09.00 ?1.1bn IT Retail sales (Feb) m/m 09.00 0.3% GB PSNCR (Mar) 09.30 ?15.9bn GB MPC members testify about ‘the MPC 10 years on' 09.45 EU Manu orders (Feb) m/m 10.00 1.0% US Chain store sls (w/e Apr 21) w/w 12.45 -0.6% last CA Leading indicator (Mar) m/m 13.30 0.5% US Redbook sls (w/e Apr 21) m/m 13.55 -4.0% last CA BoC policy announcement 14.00 unch US S&P/CS house prices (Feb) y/y 14.00 -0.2% last BE Business confidence (Apr) 14.00 2.0 GB CBI qtrly & mthly trends survey 14.15 US Consumer confidence (Apr) 15.00 105.0 US Existing home sales (Mar) 15.00 6.40m US ABC consumer conf (w/e Apr 22) 22.00 -5 last Market Holiday (tomorrow) - AU and NZ JP Trade balance (Mar, sa) 00.50 ?947bn Latest data Actual Consensus* JP CSPI (Mar) y/y 0.6% 0.2% AU CPI (Q1) q/q 0.1% 0.6% AU CPI (Q1) y/y 2.4% 3.0% AU CPI mkt prices ex-volatile (Q1) y/y 2.2% 2.6% AU CPI-RBA trimmed-mean (Q1) y/y 2.7% 2.8% AU CPI-RBA weighted median (Q1) 2.7% 2.9%
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