If the markets do not believe in something, they are not persuaded. If they are pessimistic about the future, even in the most positive statements and data they will find somber overtones. The latest example – the market reaction to the last week news from Australia.
As I predicted, the Reserve Bank of Australia (RBA) at its meeting on Tuesday, February 5 left the key rate unchanged at 3.0%. In the accompanying statement, there were many bright notes of:
- The downside risks have receded;
- Economics of main trading partner – China – entrenched in the high rates of growth;
- The prices of raw materials, the main story of Australian exports, rose;
- The mood in the financial markets is improving;
- The current monetary policy, the RBA is “quite soft”, long-term rates are at “exceptionally low” level;
- Prospects for consumer spending and construction sector are positive.
There were, of course, the negative aspects. The Central Bank, in particular, noted that the unemployment rate continues to rise, and investment in the mining industry is nearing its peak, which, of course, is followed by a recession. As for the national currency management of RBA commented that it remains higher than could have been predicted.
Comparing positive and negative, it’s hard not to recognize that a positive outbalances. But the players have noticed in the RBA statement one small note: inflation is at a level that allows, if necessary, to resort to additional mitigation. Although no promise to reduce rates in this phrase, of course, is not contained, the market took it almost as a declaration of intent. Analysts excitedly began to argue about when to wait for a rate cut – in March or in April. AUDUSD pair rushed down.
Another impetus for the Aussie down was released the next day, a report on retail sales, reflecting the decline in their volume in December by 0.2% compared with November. As we learned from the same report, the growth of sales in the fourth quarter was only 0.1% q / q vs. +0.5% q / q. These figures make the market even more convinced of the need for a new stimulus from the RBA to push AUDUSD pair of 2.5-month low 1.0296. After that the “bears” with malice waited until the scheduled the next day (February 7), the employment report of the Australian population, hoping that it will also be a disaster …
But the report was, to their surprise, quite decent: the unemployment rate in January has not grown, employment increased by 10,400 jobs. There is no reason to push the Aussie even lower. But, it appeared a little later: decline of the euro after a press conference of Draghi fascinated the Australian dollar to new lows.
What do we have in the “bottom line”?
On the one hand:
- Quite positive accompanying statement of the central bank
- Not brilliant, but not such a gloomy macroeconomic statistics. Moreover, this statistic does not say that already spent easing the RBA is not enough. The last rate cut occurred at the end of 2012, so the effects of it yet to come.
On the other hand:
- The phrase of the accompanying statement that inflation allows the RBA if necessary to resort to further easing.
- Belief of the market that this softening occurs.
The paradox is that, hitting Aussie, the market just puts another hurdle on the way the implementation of its hopes. The high rate of the national currency, which complained leadership of the central bank, has become lower. That gives RBA one more reason not to rush to lower rates.