On Australian data front, on Tuesday, Building Approvals and Trade Balance figures were released. The seasonally adjusted estimate for total dwellings approved fell 3.3% in December after rising for two months. Analysts were predicting decline by 4.8%.The seasonally adjusted estimate of the value of total building approved fell 14.7% in December after rising for two months. The value of residential building fell 10.9% after rising for two months. The value of non-residential building fell 22.7% following a rise of 29.1% in the previous month.
Separate report on Trade Balance showed that in seasonally adjusted terms, the balance on goods and services was a deficit of $436m in December 2014, a decrease of $580m (57%) on the deficit in November 2014, and above market forecasts on deficit of $850m. Goods and services credits rose $374m (1%) to $27,243m, while goods and services debits fell $206m (1%) to $27,680m.
However, the focus was on RBA interest rate decision and the following statement. While markets were anticipating that RBA will leave its interest rates unchanged, RBA surprisingly cut its interest rates from 2.50% to 2.25%. This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target.
In the following statement it was said that Aussie “remains above most estimates of its fundamental value.” Also, “a lower exchange rate is likely to be needed to achieve balanced growth in the economy,” according to the statement. “The economy is likely to be operating with a degree of spare capacity for some time yet.”
Focus of morning part of Thursday's session was on Australian Retail Sales figure. The seasonally adjusted estimate rose 0.2% in December 2014. This follows a rise of 0.1% in November 2014 and a rise of 0.4% in October 2014. Analysts were expecting 0.3% increase. In trend terms, Australian turnover rose 3.3% in December 2014 compared with December 2013.
Aussie was pushed higher on Friday morning after RBA Monetary Policy Statement. In its statement RBA marked market pricing as a good, but not definitive. More importantly it eased the outlook for inflation while leaving clues to its next policy moves deliberately vague. The inflation view eased to 1.25% for headline CPI by June 2015 from an earlier range in November of 1.50% to 2.50% - and well below the mid-point aim of the 2% to 3% target.
As for the cash rate that was on cut on Tuesday to new historical low at 2,25% the forecasts assumed that the cash rate moves broadly in line with market pricing but the RBA cautioned that doing this "doesn't represent a commitment by the board to any particular path for policy." The last time the RBA used market pricing in its cash rate assumption forecast was in May 2011.
This week markets will be looking at:
ANZ Job Advertisements (Monday 1:30)
NAB Business Confidence (Tuesday 1:30)
HPI(Tuesday 1:30)
Chinese CPI/PPI (Tuesday 2:30)
Home Loans (Wednesday 1:30)
Employment Change/Unemployment Rate (Thursday 1:30)
