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
