FXStreet (Delhi) – Jane Foley, Research Analyst at Rabobank, notes that the combination of a stronger USD and weak Chinese import data has weighed on the AUD since Friday afternoon.
Key Quotes
“However, the broad-based rally of the USD on the back of Friday’s strong US payrolls report has had the effect of softening monetary conditions elsewhere. This factor combined with the better than expected reading on ANZ’s monthly job adverts has resulted in a scaling back of market expectations regarding a February RBA rate cut. That said, we would argue that the headwinds blowing from China continue to bias the odds in favour of a least one more policy move from the RBA this cycle.”
“Chinese imports plunged 18.8% y/y (in USD terms) in October. Much of this was related to price movements in commodity markets, but even stripping this out import volumes are notably lower than a year ago particularly in bulk materials such as iron ore and coal – which are key Australia’s two major exports. According to Chinese data, iron ore imports by volume dropped 12.3% m/m, 4.9% m/m in October while coal imports plummeted 21.4% m/m, 30.7% y/y.”
“While there appears to be no end in sight to the woes of the mining sector, the release of better than expected ANZ monthly job adverts report suggests that the Australian economy is having some success in rebalancing itself.”
“The official Australian Labour market report is due for release later in the week and this is expected to show an increase in jobs of 15K in October following a drop of – 5.1K in September. The resilience of the labour market is reassuring. However, one notably theme of the Australian economy in recent years has been the decline in wage growth.”
“The release of Q3 CPI inflation at 2.1% y/y (trimmed mean) surprised on the downside. Although the combination of the weaker AUD and the improvement in the labour market should be supportive for inflation, there is still the risk that demand driven inflation will remain subdued. Currently we see a strong chance of an RBA rate cut at the February meeting (after the next quarterly CPI release) and we forecast a move towards AUD/USD0.68 on a 6 mth view.”
(Market News Provided by FXstreet)