AUD/USD Daily Forecast

Tuesday, May 03 2016

Tuesday brought Australian Building Approvals figures and China's Manufacturing PMI data. The seasonally adjusted estimate for total dwellings approved rose 3.7% in March and has risen for two months. Analysts were predicting 1.8% decrease. Private sector houses rose 2.6% in March and has risen for two months, while private sector dwellings excluding houses rose 6.7% in March and has risen for two months. The seasonally adjusted estimate of the value of total building approved fell 2.0% in March following a rise of 5.8% in the previous month. The value of residential building rose 2.0% and has risen for two months. The value of non-residential building fell 11.2% following a rise of 1.8% in the previous month.

Separate report on China's Manufacturing PMI showed that index came in at 49.4, down 0.3 points from March's reading. No change was expected. All of the index's categories indicated conditions worsened month-on-month, with output slipping back below the 50-point neutral level. The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn.”

However, the focus of the session was on RBA interest rate decision and the following statement. Australia’s central bank cut interest rates to a fresh record low as it moves to counter the emergence of disinflation that’s swept the developed world and limit currency gains that could complicate an economic transition. Reserve Bank of Australia Governor Glenn Stevens and his board lowered the cash rate by 25 basis points to 1.75 percent Tuesday, as predicted by 12 of 27 economists survey. “Inflation has been quite low for some time and recent data were unexpectedly low,” Stevens said in his statement. “These results, together with ongoing very subdued growth in labor costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.”

The RBA reiterated that “an appreciating exchange rate could complicate” the economy’s transition. It also noted the rebound in the iron ore price in response to policy easing in China, Australia’s biggest trading partner.“Commodity prices have firmed noticeably from recent lows, but this follows very substantial declines over the past couple of years,” Stevens said. “Australia’s terms of trade remain much lower than they had been in recent years.”

There will be no data releases from Australia tomorrow. In the US session, ADP job figures and Non-Manufacturing PMI data will be published. Analysts are forecasting increase by 205,000 in private sector employment, while Non-Manufacturing PMI should rise to 54.9.

Figures to watch:

ADP Non-Farm Employment Change (Wednesday 14:15)

ISM Non-Manufacturing PMI (Wednesday 16:00)

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