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Today’s Asian session trading turned out pretty well for the Aussie and Kiwi, which took advantage of positive reports, not-so-dovish central bank insights, and a positive Chinese PMI release.

  • AU AIG services index up from 51.4 to 51.7 in November
  • AU ANZ commodity prices slips by 0.9% vs. 0.3% decline in October
  • AU current account shows 9.1B AUD deficit vs. -8.8B AUD expected, -9.7B deficit in Q2
  • AU retail sales jumps by 0.5% vs. 0.3% uptick expected, 0.1% gain in September
  • RBNZ Gov. Spencer: weak global inflation assumption puts upside risks to inflation and interest rates
  • China’s Caixin services PMI improves from 51.2 to 51.9 in November
  • RBA keeps rates at 1.50% as expected
  • BOJ’s core CPI (y/y) steady at 0.5% as expected in October

Major Events/Reports:

Australia’s data releases

Hours before the RBA’s release we saw Australia print its current account and retail sales reports.

Australia’s current account deficit fell by 539M AUD compared to a year earlier in Q3 2017, which put the official figure at -9.1B after clocking in at -9.7B in Q2.

Apparently, the decline in net primary income (read: net foreign investments) was the main reason why current account deficit narrowed during the quarter. Oh, and imports and exports grew at the same pace, so international trade expected to make NO CONTRIBUTION to Q3’s GDP.

The retail sales report provided the good vibes with its 0.5% increase in October when market players had only expected a 0.3% uptick. What’s more, the trend estimate inched 0.1% higher after seeing 0.0% growth in both August and September.

The better-than-expected growth reading was welcome news to investors who were worried that tighter household budgets due to lower wages and entry of new retailer competition *cough* Amazon *cough* would continue to weigh on consumer activity.

RBA keeps rates steady at 1.50%

As widely expected, the Reserve Bank of Australia (RBA) kept its interest rates at 1.50% for another month in December.

As in last month’s statement, the central bank still believes that GDP will average at around 3% “over the next few years.” It’s also more optimistic about non-mining activities this time, saying that “investment has improved further” for the sector.

RBA was still looking at jobs, however. Specifically, Governor Stevens and his team saw that wages remain low even as “some employers are finding it more difficult to hire workers with the necessary skills.” What’s more, the central bank continued its tune about low wages likely continuing “for a while yet” before labour market improvements lift wages over time.

What caught market players’ attention was the RBA removing its “inflation is likely to remain low for some time” text. Instead, the statement only talked about how CPI is still expected to pick up gradually.

Another reason why Aussie bulls came out to play was that there wasn’t as much jawboning this time. Instead of saying that the appreciating exchange rate would contribute to subdued price pressures, RBA now thinks that the Aussie “remains within the range that it has been over the past two years.”

Overall, the central bank still believes that its current rates are enough to support the economy. And not surprisingly, the less-dovish-than-expected release enticed more Aussie bulls out to the pip streets.

RBNZ to put more weight on output and employment?

In a speech delivered to the Institute of Directors in Auckland, Reserve Bank of New Zealand acting Governor Grant Spencer hinted that he and his team would soon look at more than inflation for policy direction.

Spencer shared that the “flatness” in the Phillips curve would mean that it would take sharp deviations in unemployment and output gap to hit the 2% inflation target.

This means that RBNZ should continue to be extra patient for that increased inflation AND that they should probably look at other metrics (read: output and employment) in targeting inflation.

Spencer added that (emphasis mine):

“…our flexible inflation targeting approach is becoming more flexible. In pursuing our long term price stability objective, relatively more weight is being attached to the stabilisation of output and employment in the short to medium term.

Which unsurprisingly led to the Governor hinting about the RBNZ’s future mandates:

“In this respect the Reserve Bank’s direction is consistent with the Government’s initiative to introduce a dual mandate for monetary policy.”

Of course, it also didn’t hurt that Spencer talked about RBNZ’s low inflation expectations, saying that it opens them to upside risks should inflation actually improve (emphasis mine):

“In our recent November Monetary policy statement, we assume that weak global inflation will persist in line with the forecasts of the international institutions. This now puts some risk on the upside for inflation and interest rates.

If the assumption proves incorrect and global inflation picks up in response to increased global growth, then we would likely see higher international interest rates, a lower NZ dollar exchange rate and higher traded goods inflation. This would put upward pressure on domestic interest rates, as portrayed in “Scenario 1” of our November policy statement.”

Major Market Mover(s):

AUD and NZD

The comdolls had a good session against their lower-yielding counterparts thanks to a lack of dovishness from both RBA and RBNZ head honchos as well as risk appetite over China’s better-than-expected PMI report.

AUD/USD is up by 46 pips (+0.61%) to .7644;
AUD/JPY is up by 60 pips (+0.70%) to 86.01;
NZD/USD is up by 35 pips (+0.51%) to .6895, and
NZD/JPY is up by 50 pips (+0.65%) to 77.59.

Watch Out For:

  • 8:15 am GMT: Spain’s services PMI (55.2 expected, 54.6 previous)
  • 8:45 am GMT: Italy’s services PMI (53.4 expected, 52.1 previous)
  • 8:50 am GMT: France’s final services PMI to remain at 60.2?
  • 8:55 am GMT: Germany’s final services PMI to remain at 54.9?
  • 9:00 am GMT: Euro Zone final services PMI expected to remain at 56.2
  • 9:30 am GMT: U.K. services PMI (55.2 expected, 55.6 previous
  • 9:30 am GMT: BOE’s Financial Policy Committee to print its meeting minutes
  • 10:00 am GMT: Euro Zone’s retail sales (-0.6% expected, 0.7% previous)
  • 10:00 am GMT: Euro Zone’s revised GDP (q/q) to retain its 0.6% figure?