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RBA remains on hold The Reserve Bank of Australia kept the official cash rate unchanged, as was universally expected, and went back to saying that the exchange rate “remains above most estimates of its fundamental value.” This month the members decided to drop the line that the rate “remains high by historical standards,” as it had said several times before. As in the statement accompanying the decision, the Bank said that recent data on prices confirmed that inflation is running between their 2%-3% target and the Board members showed confidence that this is likely to continue. On the other hand, they kept their concerns over the labor market which has some time yet before it declines consistently. AUD/USD strengthened following the decision, most likely due to the confidence over the inflation rate but continued gyrating around 0.8800. As for the country’s data releases, trade deficit widened more-than-expected in September while retail sales for the same month accelerated beating market estimates. The mixed data caused AUD/USD to dip briefly at the release but gained in the following minutes to trade unchanged until the rate decision. (see the technical below)

With no other major economic releases overnight, USD kept its strength against most of its peers. It was lower only against EUR, CHF and GBP.

Elsewhere, oil prices plunged after reports showed that Saudi Arabia lowered its export prices for the US. The price cut can be seen as an effort from the Kingdom to preserve market share in the US, where it has fallen recently and to compete with the US shale production. The New York benchmark oil price, West Texas Intermediate for December delivery, dropped to trade around USD 78.30 a barrel, while European benchmark Brent oil for December dropped approximately to USD 84.30 a barrel.

As for today’s indicators, Eurozone’s PPI for September is expected to fall at an accelerating pace indicating that the deflation risk persists in the region.

From the UK, the construction PMI for October is expected to decline.

In the US, we get factory orders and trade balance, both for September.

In New Zealand, the Q3 unemployment rate is anticipated to decline somewhat, while the participation rate is expected to increase and average hourly earnings are forecast to accelerate. Last week, the RBNZ remained on hold without any indication on when they may raise rates. This together with the decline of the inflation rate to the lower boundary of the Bank’s range target of 1%-3% over the medium term, kept Kiwi under increased selling pressure. The positive labor market data however and the fact that the pair is trading near a strong support level could push NZD/USD up before the bears prevail again.

We have several speakers on Tuesday’s agenda. ECB Coeure, ECB Governing Council member Carlos Costa, Riksbank Deputy Governor Martin Floden speak, while Bank of England Deputy Governors Jon Cunliffe and Andrew Bailey are questioned by the Lords panel.

Tuesday, 04 Nov, 2014 / 9:27

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