Aussie Showing Limited Movement, RBA Rate Announcement Next

 | May 02, 2016 08:27AM ET

The Australian dollar is subdued on Monday, continuing the lack of movement which marked the Friday session. AUD/USD is trading at 0.7640 in the European session. In economic news, Australian NAB Business Confidence looked sharp, climbing 5 points. Australian Building Approvals is expected to post a decline of 1.8%. Early Tuesday, the RBA releases its monthly rate statement and the government releases the annual budget. In the US, today’s key event is the ISM Manufacturing PMI.

Will the RBA make a move on Tuesday? The central bank has consistently sent out the message that it will not hesitate to lower rates if warranted by economic conditions, but has been shy to act. Until last week, the markets were expecting more of the same from the upcoming rate statement, but an unexpectedly weak CPI reading has increased the possibility of a rate cut. CPI declined 0.2% in the first quarter, well off the forecast of a 0.3% gain. It appears that negative inflation numbers, part of the economic landscape of the US, Japanese and Eurozone economies, has reached Australia as well. If the RBA views the negative CPI reading as a game-changer, it could decide to take firm action and lower interest rates. As well, the RBA would prefer a weaker Australian currency, and a rate cut would likely push the Aussie downwards.

US GDP climbed 0.5% in the first quarter, shy of the estimate of 0.7%. This was considerably lower than the 1.4% gain in the fourth quarter of 2015, and marked the weakest quarter of growth in two years. Although economic growth remains moderate, the lukewarm reading will not help the cause of Fed policymakers who favor a rate hike, especially with inflation at low levels. The markets, which were not expecting an April hike, are keeping a close eye on key numbers, looking for clues as to whether the Fed will make a move at its June policy meeting. The April policy statement sounded cautiously optimistic about the US economy, but did not provide any clues about a hike in June.

The US manufacturing sector continues to lag behind the economy’s generally strong performance. Last week, Core Durable Goods dropped 0.2%, well off the estimate of a 0.6% gain. This marked the fourth decline in five months. Durable Goods Orders was stronger at 0.8%, but also missed expectations, as the estimate stood at 1.9%. Recent manufacturing reports, such as the Philly Fed Manufacturing Index have also been soft, as the industry has been hard-hit by weak global demand and a downturn in the US oil industry due to low crude prices. We’ll get a look at the ISM Manufacturing Index later on Monday.

AUD/USD Fundamentals

Sunday (May 1)

  • 19:30 Australian AIG Manufacturing Index. Actual 53.4
  • 21:00 Australian MI Inflation Gauge. Actual 0.1%
  • 21:30 Australian NAB Business Confidence. Actual 5 points
Get The News You Want
Read market moving news with a personalized feed of stocks you care about.
Get The App

Monday (May 2)

  • 2:30 Australian Commodity Prices. Actual -9.4%
  • 21:30 Australian Building Approvals. Estimate -1.8%
  • 13:45 US Final Manufacturing PMI. Estimate 51.0
  • 14:00 ISM Manufacturing PMI. Estimate 51.6 points
  • 14:00 US Construction Spending. Estimate 0.5%
  • 14:00 ISM Manufacturing Prices. Estimate 51.0
  • Tentative – US Loan Officer Survey

Upcoming Key Events

Tuesday (May 3)

  • 00:30 RBA Cash Rate. Estimate 2.00%
  • 00:30 RBA Rate Statement
  • 5:30 Australian Annual Budget Release

*All release times are EDT

AUD/USD for Monday, May 2, 2016