Asian Session Forex Recap – Nov. 1, 2016

  • Chinese official manufacturing PMI up from 50.4 to 51.2
  • Chinese official non-manu PMI up from 53.7 to 54.0
  • China’s Caixin manufacturing PMI rose from 50.1 to 51.2
  • RBA kept interest rates on hold at 1.50% as expected
  • RBA: Chinese growth has steadied, commodity prices up
  • RBA: Inflation to stay low but could pick up gradually in next 2 years
  • RBA: Labor indicators mixed, leading indicators suggest expansion
  • BOJ kept monetary policy unchanged for the time being
  • BOJ: Risks to economy and inflation skewed to the downside
  • BOJ: Economy to expand moderately, risks to exports and output

The dust had barely settled after the Chinese PMI releases when the BOJ and the RBA took center stage to announce their monetary policy decisions.

Major Events:

Upbeat Chinese PMI – Asian session traders woke up on the right side of the bed upon seeing strong improvements in China’s October PMIs. The official manufacturing PMI climbed from 50.4 to 51.2 to reflect a much faster pace of industry growth instead of staying unchanged. Even the Caixin version of the report printed a steeper increase from 50.1 to 51.2 versus the projected uptick to 50.2. The official non-manufacturing PMI was up from 53.7 to 54.0 to show a stronger expansion as well.

This signals that China’s recovery has continued into the start of the fourth quarter of the year, suggesting that there may be sufficient momentum to keep the progress up until the end of 2016. Components of the report indicated that robust consumption has been responsible for propping the readings up, even as external demand remained subdued.

RBA interest rate decision
 – As expected, the RBA kept interest rates on hold at 1.50% and even added a few more hawkish remarks to boot. Policymakers acknowledged that, even though the global economy continues to grow at below-average pace, China’s performance has steadied and that commodity prices continue to advance on consistent demand.

On the domestic front, RBA officials admitted that inflation could stay low and that employment indicators have been mixed. Nonetheless, they expect price levels to pick up gradually over the next two years and cited that forward-looking jobs indicators point to an expansion in the near-term. All in all, the Australian economy is projected to grow close to its full potential over the next twelve months but the rising Aussie could complicate ongoing transitions.

BOJ policy statement – Folks over at the BOJ also decided to sit on their hands for now in a 7-2 vote, maintaining the short-term interest rate at -0.10% and carrying on with the current pace of JGB purchases so holdings can increase at an annual pace of 80 trillion JPY.

However, the BOJ was less chipper since policymakers admitted that risks to economic growth and inflation are skewed to the downside, particularly when it comes to export activity and output. They mentioned that there’s still some momentum in price levels but that it weakened recently, adding that inflation could rise towards 2% in the second half of 2018.

Still, policymakers agreed to keep very close tabs on price developments in the coming months, adding that they will continue to implement QQE with yield curve control until the economy achieves its 2% inflation target. Also, BOJ officials warned that lower confidence in fiscal stability could cause the Japanese economy to perform weaker than expected. Governor Kuroda’s press conference is still coming up so there’s room for more volatility in yen pairs!

Major Market Movers:

AUD – The Aussie popped higher after the RBA decision and the release of stronger than expected Chinese PMI readings.

AUD/USD broke above its .7600 consolidation to .7660 (+0.79%), AUD/JPY rallied from a low of 79.57 to 80.30 (+0.92%), EUR/AUD resumed its drop from 1.4432 to 1.4320 (-0.78%), and AUD/NZD advanced from the 1.0600 support to 1.0680 (+0.75%).

Watch Out For:

  • Tentative: BOJ press conference
  • 9:15 am GMT: Swiss retail sales y/y (-2.3% expected, -3.0% previous)
  • 9:15 am GMT: Swiss manufacturing PMI (53.9 expected, 53.2 previous)
  • 10:30 am GMT: U.K. manufacturing PMI (54.6 expected, 55.6 previous)

See also:

U.S. Session Recap
London Session Recap

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