• RBA: Weaker AUD is expected to lead to stronger export growth The Reserve Bank of Australia released the minutes from its latest policy meeting. At that meeting, the Bank kept its Cash Rate (CR) unchanged at 2% as expected. The key point however was that it removed from its statement the line that “Further depreciation (of AUD) seems both likely and necessary”, and instead said “The Australian dollar is adjusting to the significant declines in key commodity prices.” The tone of the August minutes seemed more upbeat than had been the case in the previous minutes. The members noted that the recent depreciation in AUD would place further upward pressure on the final prices of tradable items over the next few years, which had led to a slight upward revision to the inflation forecast. In addition, they said that further depreciation of the Aussie was expected to transit stimulus to the economy through stronger net exports. Following China’s devaluation of the yuan however, the minutes of the meeting could be outdated, in our view. Therefore, we would prefer to see the stance of RBA members in their next policy meeting, to see whether they still prefer to hold a neutral bias as far as the interest rates are concerned. AUD/USD jumped a bit on the news but stayed below 0.7400. We still believe that in the long run AUD may head lower (see technical below).
• New Zealand whole milk powder futures point to first gain since February New Zealand whole milk powder futures are pointing to the first gain in auction prices later in the day. Fonterra, the world’s biggest dairy exporter, said that it will offer a third less whole milk powder over the next auctions, in an attempt to drive prices higher. NZD/USD was slightly stronger ahead of today’s auction, amid expectations that milk prices may gain again. The pair remained below the resistance of 0.6600. A break of that hurdle is needed to push the rate higher, at least in the near term, perhaps towards 0.6630.
• As for today’s events: During the European trading session, the highlight will be the UK CPI data for July. The expectations are for the annual inflation rate to remain unchanged at 0%, while the monthly rate is forecast to have fallen 0.3% mom. At the recent Inflation Report, the MPC members seemed concerned between an increase in domestic price pressures as wages rise and a fall in import prices as commodity prices fall, and the pound strengthens. The Bank expects inflation to pick up a bit more slowly because of the second slump in global oil prices recently, therefore, a negative annual figure cannot be ruled out. In such case, GBP could weaken a bit, at least temporarily.
• In the US, we get the housing starts and building permits for July. Housing starts are forecast to increase a bit, while building permits, the more forward-looking of the two indicators, are forecast to moderate somewhat. Nevertheless, the overall strength in the housing sector could keep confidence up and USD supported.