AUD better bid following RBA rate decision
The Australian dollar rose more than 0.60% on Tuesday morning after the Reserve Bank of Australia left the Official Cash Rate unchanged at record low 1.50%. Overall, the tone of the stamen hasn’t change much since the July meeting. The central bank still expects the economy to expand by slightly more than 3% in 2018 and 2019; regarding the inflation outlook, the central forecast is for inflation to be higher than 2% in 2019 and 2020. However, due to temporary factors, inflation should eased somewhat in the third quarter of 2018.
Finally, the RBA welcomed the easing of the housing market as housing credit growth continued to decline, thanks to tighter lending standards. The outlook for the labour market continue to rejoice the RBA as the participation rate continue to increase, while the growth in employment remains positive.
Looking at the FX market this morning, the Aussie’ appreciation is rather due to a broad US dollar weakness. Indeed, the greenback lost ground against all its G10 peers, with the Dollar Index falling 0.16% to 95.20. AUD/USD climbed to 0.7434 and is about to test the 0.7441 resistance (high from July 31st). Overall, the currency pair is stuck in range trading for the last two months – just like most of G10 currencies. It looks like investors are waiting to get further clarity on the trade war between the US and its main trading partners. Unfortunately, it could continue for several months.
German commercial balance improves, but industrial production disappoints
A truce seems to have been found between the EU and the US – at least for now. But this positive news has to be converted into facts, and this will certainly take time. For now, the German economy provides economic figures, which tell us that the economy was already slowing down in June. Though June trade balance is highest since March 2018 amid exports and imports estimated at EUR 115.5 billion and EUR 93.7 billion (highest monthly import value since first publication in 1950), the German economy is showing a slowdown in production figures.
Indeed, given at -0.90% (consensus: -0.50%), m/m June industrial production figure along with y/y numbers are lower, suggesting a global slowdown in manufacturing activities across the country, despite strong economic numbers in May.
Therefore, we expect Q2 GDP q/q numbers (published on 14. August 2018) to remain slightly above Q1, along 0.40% while it should slow down in the next periods. Strong economic confidence, private consumption and inflation at 2% remain supportive for the second quarter 2018.
EUR/USD is currently trading at 1.1586, expected to decline along 1.1555 in the short-term.
