Article Highlights

  • AU AIG construction index up from 47.7 to 53.1
  • U.K. BRC retail sales monitor (y/y) down by 0.4% vs. 0.6% decline in January
  • RBA keeps its rates unchanged at 1.50% as expected
  • BOJ’s core CPI (y/y) inched higher from 0.1% to 0.2% in January
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The Aussie was king of pips during the Asian forex trading session after the RBA kept its interest rates steady for a sixth month in a row as expected.

Major Events:

RBA keeps its rates unchanged – As expected, the Reserve Bank of Australia (RBA) kept its interest rate steady at 1.50%. This marks the sixth consecutive month of not making any changes after the central bank cut its rates in May and August last year.

In his statement, RBA Governor Lowe nodded to the improvements in the global economy, saying that they have contributed to higher commodity prices, which have provided “significant” boosts to Australia’s income.

Lowe also maintained that the economy is continuing its transition from a mining boom. Exports and business investment have risen; business and consumer confidence measures are at or above average, and consumption growth was stronger towards the end of the year.

The RBA wasn’t too worried over a strong Aussie either. It made no changes to its previous statement that “The depreciation of the exchange rate since 2013” has assisted the economy’s transition from a mining boom but that “an appreciating exchange rate would complicate the adjustment.”

Lowe and his gang also believe that “underlying inflation is likely to stay low for some time,” as labour costs remain subdued. Meanwhile, headline inflation is expected to hit above 2.0% in 2017. Speaking of labour costs, the RBA says that labour “indicators continue to be mixed” but that most of the employment growth is “concentrated in part-time jobs.”

As for housing, the RBA says that conditions “vary considerably” with prices in some regions rising briskly while declining in others. A “considerable addition” appartment supply is expected to hit the eastern capital cities even as growth in rents is at its slowest in two decades.

Aussie bulls came out of the woodwork at the release of the statement. As Forex Gump said in his trading guide, some had expected to RBA to backpedal a bit on its optimism.

But with the central bank mostly maintaining its stance despite a stronger currency, market players are now speculating on a possible rate hike as the RBA’s next move. After the release, futures pricing showed a 33.3% (up from 29.9%) possibility of a rate hike before 2017 while rate cut speculations slipped from 3.4% to 3.3%.

Mixed risk sentiment – With not a lot of major data on the docket, market players decided to stay in the sidelines and trade cautiously ahead of this week’s big events.

The dollar took a couple of hits from its major counterparts on a bit of profit-taking. See, while some are doubting Trump’s ability to concentrate on his tax and infrastructure projects, they also don’t want to unload all of their positions especially if the Fed does raise its rates as expected. The CME Group’s FedWatch tool priced in an 86.4% chance of a Fed rate hike as of Asian session trading.

Nikkei slipped by 0.22%, Hang Seng is up by 0.31%, the Shanghai index down by 0.07%, and Australia’s A SX 200 is up by 0.29%.

Market Movers:

AUD – The Aussie was king of pips during the Asian session after the RBA maintained not only its interest rates steady, but its optimistic tone on the economy.

AUD/USD shot up by 24 pips (+0.32%) to .7604, AUD/JPY is up by 30 pips (+0.35%) to 86.65 and AUD/NZD is up by 13 pips (+0.12%) to 1.0852.

Meanwhile, EUR/AUD is down by 34 pips (-0.24%) to 1.3922 and GBP/AUD is down by 34 pips (-0.21%) to 1.6099.

Watch Out For:

  • 7:00 am GMT: German factory orders (-2.5% expected, 5.2% previous)
  • 7:45 am GMT: French government budget balance
  • 8:00 am GMT: Switzerland’s foreign currency reserves (644B CHF previous)
  • 8:30 am GMT: U.K. Halifax house price index (0.4% expected, -0.9% previous)
  • 10:00 am GMT: Euro Zone revised GDP expected to remain at 0.4%

See also:

U.S. Session Recap
London Session Recap

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