RBA leaves key rate on hold The Reserve Bank of Australia (RBA) kept rates steady at 2.5%, as was universally expected. I could discern no significant differences at all between the statement this time and last time. Bank’s Governor Glenn Stevens repeated that “The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy.” AUD/USD weakened approximately 10 pips at the release of the statement but recovered all the losses and advanced even more in the following minutes perhaps on relief that they didn’t come out with any stronger statement about the AUD.
The nation’s trade deficit narrowed to USD-1.68bn in June, compared with an upwardly revised deficit of USD-2.04bn in the previous month, lower than the market consensus. The June deficit was the third large deficit in a row as weak global commodity prices and strong AUD deteriorate the countries trade balance.
China’s HSBC services PMI dropped to its lowest reading in the nine-year series history, down to 50.0 in July from 53.1 in June. The weaker reading raise questions on whether Chinese government needs to do more to support growth, especially after last Friday’s robust manufacturing PMI. On the other hand, the weakness in the headline figure likely reflects the ongoing slowdown in the housing market and the correction in the properties is needed to consolidate the economic recovery.
Today’s action: During the European day, we get the service-sector PMIs for July from the countries we got the manufacturing data for on last Friday. As usual, the final forecasts from France, Germany and Eurozone are the same as the initial estimates. Eurozone’s retail sales for June are also coming out and the forecast is for the monthly figure to rise.
In the UK service-sector PMI for July is expected to have increased slightly to 58.0 from 57.7. The British pound has been suffering recently by below expectations data, weakening cable approximately 2% since its peak last month. Nevertheless, we believe that UK’s economy remains strong and the service-sector PMI solid reading should be important for Cable to regain its lost glamor.
In the US, the ISM non-manufacturing index for July is expected to increase a bit, while the nation’s factory orders are forecast to have rebounded in June.
We have no speakers scheduled on Tuesday.