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European Session: RBA Hikes Rates Again But Moderates Hawkish Tone

The major news overnight has been the RBA meeting where rates were raised 25bps to 3.50% as expected. AUDUSD had ground gradually higher in anticipation of the announcement, but sold off from 0.9090 to 0.9007 after the release as the supplementary statement sounded a moderately less hawkish tone. The statement removed previous comments that the “very expansionary setting” of current rates was “possibly imprudent”, and inserted that the removal of accommodative monetary policy from here would happen “gradually”. Some speculators had hoped for a 50bps hike this month but it seems the RBA is comfortable that this steady pace of rate rises is appropriate for now, and even referred to the current strength of AUD as likely to “dampen price pressures”.

Today’s European data releases kick off with Norway PMI; expected to post an improved 49.0 after last month’s 47.4 reading. Considering the price action in EURNOK recently, it is clear that positioning is posing a headwind to NOK gains, even when risk appetite is surging. Given that most regional PMI figures yesterday tended to be in line with or better than expectations (and had no currency impact), it is unlikely that this will buck the trend, however it is possible a poor PMI figure today could prompt a round of stop-hunting. UK Construction PMI rounds off the morning but this will be a minor data point likely to be overshadowed by broader risk appetite themes today and the all-important MPC meeting on Thursday.

The US session is only due to include US Factory Orders (0.8% MoM expected, -0.8% previous); although a relatively volatile figure, we would expect a higher than consensus reading to induce a similar reaction to yesterday’s US data (i.e. a boost to equities and short-term support for risk appetite). Tomorrow will be the key event for the USD as we await the FOMC meeting statement.

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