Intraday Market Thoughts

No PM, No Problem. RBA Next

by Adam Button
Dec 5, 2016 23:25

The snap resignations of the Prime Ministers of Italy and New Zealand sent shudders through their respective currencies but once the dust settled, both reversed higher. The euro was the top performer while the yen lagged. The RBA decision is up next. The Premium video for subscribers will be made be posted this evening.

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No PM, No Problem. RBA Next - Govt 10 Year Yields Dec 5 (Chart 1)

The euro bottomed when Renzi lost the referendum and resigned but 1.05 in EUR/USD and the key 2015 lows held. In the hours that followed, a slow climb in the euro turned into a surge and it finished at a three-week high of 1.0760.

We were mindful of the risks of a reversal and wrote about them yesterday. Going forward what matters is the strength of the turnaround. That's a bullish sign and compounded by the strong December seasonals for the euro.

An even bigger surprise was the resignation of John Key in New Zealand. There were no rumors he would quit and was seen as a successful, effective leader. Yet the initial drop in NZD was reversed and NZD/USD finished mildly higher.

Rather than looking at those FX moves individually, perhaps we should be looking at the whole. Instead of surprising strength in those currencies, we could be seeing the start of a round of US dollar weakness. The dollar was given a helping hand by the ISM non-manufacturing index as it rose to 57.2 versus 55.4 expected. Yet it weakened across the board late in the day. USD/JPY touched 114.79 only to fade to as low as 113.12.

The next currency to be tested will be the Australian dollar. The RBA decision is at 0330 GMT and is a highlight on the calendar (along with a speech from Kuroda 15 minutes later). In short, expectations for the RBA are low and economists are unanimous there will be no change. Watch for comments on the slow pace of wage growth and changes in terms of trade. There was a fright after the weak GDP numbers but Lowe is likely to brush it off and wait-and-see what happens over the Australian summer break.

Act Exp Prev GMT
RBNZ Gov Wheeler Speaks
Dec 06 22:00
Eurozone Revised GDP (q/q)
0.3% 0.3% Dec 06 10:00

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