Asia Session: Fiscal policy vs. monetary policy in Australia
Asia Session
Updated Oct 22, 2012 12:34:21 AM Written by Chris Tedder
Risk-off
sentiment stemming from a lacklustre performance from EU officials in
Brussels flowed into Asian markets early in the session, before a small
turnaround in sentiment mid-way in the session. AUDUSD was hovering
above 1.0300 shortly after markets came online, at the same time EURUSD
only just managed to hold itself above 1.3000. Very weak export data
from Japan didn’t alleviate the mood in the market, nor did more
jawboning from BoJ Governor Shirakawa about the need for more policy
loosening in Japan. On the back of the Governor’s comments the yen lost
ground against all of the majors.
Australia’s mid-year budget
In Australia, the government pledged to maintain its commitment to a budget surplus, promising to tighten health-care spending and scale back family support payments. Whilst the moves of the government won’t likely spell disaster for the Australian economy, they are coming at a time when external and internal threats to growth are heightened. Hence, the question has to be asked are these latest attempts to reach an unrealistic budget surplus more politically motivated than economically.
It seems the federal government is putting the burden on stimulating growth solely on the shoulders of the RBA, which isn’t entirely unreasonable given the RBA’s mandate. But it may be better for the economy if fiscal policy and monetary policy weren’t driving it in different directions. The punch line of today’s budget is that the government is predicting a surplus of AUD1.1bn the year and 2.2bn next year, which is unrealistic in our opinion. Also, the government, unsurprisingly, downgraded 2012-2013 growth forecast to 4% from 5%, which largely represents an unexpected 8% decline in Australia’s terms of trade this financial year.
In regards to the RBA, investors are waiting for the release of inflation data on Wednesday which should back-up the market’s stance that inflation provides scope for more rate cuts. Headline CPI is expected to print at +0.5% q/q, unchanged from last time around. This wouldn’t likely prevent the RBA from cutting the official cash rate in November if they saw scope to do so.
More weak Japanese data
Earlier the session, exports out of Japan slid the most since last year’s massive earthquake and tsunami. The 10.3% slide in shipments y/y to September contributed to a trade deficit of JPY558.6bn. That prompted calls from Shirakawa for more easing from the BoJ, which supports the view of many other officials in Japan that the BoJ needs to do more to combat weak levels of demand for Japanese goods due to a strong yen and generally weak levels of global growth.
Ones to watch: NZDUSD
NZDUSD was one of the biggest movers of the session, jumping around 30 pips early in the session. The pair, however, stopped short of breaking any significant resistance levels. NZDUSD hit some resistance around its 100hr and 200hr SMAs. Beyond this 0.8210 and then 0.8225 may prove to be resistance levels for the pair.
NZDUSD – hourly
Australia’s mid-year budget
In Australia, the government pledged to maintain its commitment to a budget surplus, promising to tighten health-care spending and scale back family support payments. Whilst the moves of the government won’t likely spell disaster for the Australian economy, they are coming at a time when external and internal threats to growth are heightened. Hence, the question has to be asked are these latest attempts to reach an unrealistic budget surplus more politically motivated than economically.
It seems the federal government is putting the burden on stimulating growth solely on the shoulders of the RBA, which isn’t entirely unreasonable given the RBA’s mandate. But it may be better for the economy if fiscal policy and monetary policy weren’t driving it in different directions. The punch line of today’s budget is that the government is predicting a surplus of AUD1.1bn the year and 2.2bn next year, which is unrealistic in our opinion. Also, the government, unsurprisingly, downgraded 2012-2013 growth forecast to 4% from 5%, which largely represents an unexpected 8% decline in Australia’s terms of trade this financial year.
In regards to the RBA, investors are waiting for the release of inflation data on Wednesday which should back-up the market’s stance that inflation provides scope for more rate cuts. Headline CPI is expected to print at +0.5% q/q, unchanged from last time around. This wouldn’t likely prevent the RBA from cutting the official cash rate in November if they saw scope to do so.
More weak Japanese data
Earlier the session, exports out of Japan slid the most since last year’s massive earthquake and tsunami. The 10.3% slide in shipments y/y to September contributed to a trade deficit of JPY558.6bn. That prompted calls from Shirakawa for more easing from the BoJ, which supports the view of many other officials in Japan that the BoJ needs to do more to combat weak levels of demand for Japanese goods due to a strong yen and generally weak levels of global growth.
Ones to watch: NZDUSD
NZDUSD was one of the biggest movers of the session, jumping around 30 pips early in the session. The pair, however, stopped short of breaking any significant resistance levels. NZDUSD hit some resistance around its 100hr and 200hr SMAs. Beyond this 0.8210 and then 0.8225 may prove to be resistance levels for the pair.
NZDUSD – hourly
Source: FOREX.com
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