Central banks will dominate the news flow this week – again. Key policy meetings are due in Australia, Poland and India, while we will see the release of the minutes of the most recent meetings of the US Federal Reserve and the European Central Bank, both of which saw major market-influencing decisions released.
In Australia, the RBA which meets tomorrow is likely to leave interest rates on hold for the 11th month in a row. But some analysts see the chances of a rate cut growing with the rise in the value of the Aussie dollar towards 80 US cents (it was around 76.70 US cents at the weekend).
With the Fed now on hold for much of this year, markets still volatile, the negative interest rate regimes of the Bank of Japan and European Central Bank are sending investors scouring the world for yield, and finding it in Aussie dollar assets. So there is growing upward pressure on the Aussie currency at a time when the economy doesn’t need it.
The AMP’s chief economist Dr Shane Oliver wrote at the weekend, “We continue to see another rate cut in the months ahead: as mining investment continues to unwind; the contribution to growth from housing looks like it will slow; to offset possible further out of cycle bank interest rate hikes; as inflation remains low; and to help push the $A back down".
“However, it’s doubtful that the RBA is ready to make a move just yet particularly with recent good readings on GDP growth and unemployment.”
“However it is likely to retain an easing bias and most interest will focus on whether it responds to the 7% gain in the value of the $A since its last Board meeting by a bit a jawboning to try and get it lower again consistent with Governor Steven’s comment that it “might be getting ahead of itself,” he wrote at the weekend.
But economists from Comsec wrote on the weekend that they don’t see a rate cut this year.
"Rates are unlikely to move in any direction over the next couple of months. Recent commentary from the Reserve Bank makes it clear that while there is an “implicit” easing bias, the focus is on getting better readings on timely economic data,” Comsec economists said.
"Interestingly the statement following the interest rate decision will be closely scrutinised for any views on the Australian dollar. Despite recent comments for a lower Aussie dollar, the Reserve Bank may have more to say given the currency is comfortably holding above US76 cents.
"Overall, we don’t expect the Reserve Bank to shift rates over the rest of 2016. Inflation remains well contained but stronger activity and growth should result in the Reserve Bank keeping its powder dry,” Comsec said.
On the data front retail sales for February are out today and could show a slight strengthening from January’s 0.3% rate.
Building approvals are also out later today and a small rise is forecast after several weak months, especially in January.
And another large trade deficit of around $2.8 billion is expected in tomorrow’s trade figures for February, which are out tomorrow.
As well there’s the private inflation measure from TD Securities and the Melbourne Institute and the ANZ job ads figures for March – both are out later today.
Tomorrow also sees the monthly survey of activity in the country’s huge services sector – after the jump in manufacturing last week to a 12 year high of 58.1, a solid reading is expected for the largest part of the economy. New car sales figures for March are also out tomorrow.
Late Wednesday afternoon, Reserve Bank Assistant Governor Christopher Kent (economics) delivers a speech at the Reserve Bank in Sydney titled “Economic Forecasting at the Reserve Bank of Australia".
Thursday, the latest Bureau of Statistics data on tourist arrivals will be released. Tourists to Australia from China and Hong Kong combined topped 1.3 million in the past year, up almost 24% and close to catching the 1.32 million visitors from New Zealand.
In the US, the minutes from the Fed’s last meeting (Wednesday night our time) will be rather dated given Chair Janet Yellen’s comments in the last week, but they will be interesting for signs of the debate about the economy and rates.
Ms Yellen will appear with previous Fed chairs Ben Bernanke, Alan Greenspan and Paul Volcker for a panel discussion in New York on Thursday night, our time.
Her comments will again be watched closely. Including Ms Yellen’s appearance, five Federal Reserve policymakers are scheduled to speak this week.
The non-manufacturing conditions survey (services) is out tomorrow night, along with the February trade data and labour market indicators.
And US politics intrudes (again) this week with the state of Wisconsin holding primaries for both Democratic and Republican presidential candidates tomorrow night, our time.
Polls show Vermont senator Bernie Sanders is leading Hillary Clinton in Wisconsin, and Texas Senator Ted Cruz, is ahead of Donald Trump. A win by Cruz could seriously damage Trump.
In Asia the major news will be the meeting of the Reserve Bank of India tomorrow. Some analysts see a rate cut emerging from the meeting.
And China’s March foreign reserves data will be issued on Thursday and will be again closely examined to see if the central bank has spent any more money defending the value of the yuan, and the size of the capital outflow.
