• RBA keeps interest rates unchanged The Reserve Bank of Australia kept official interest rates unchanged amid signs of improvement of business conditions over the past year and a somewhat stronger growth in employment. It signaled however that low inflation may afford scope for further easing of policy. Although the RBA adopted an easing bias compared to the neutral stance in the last few meetings, the Board judged that the prospects for an improvement in economic conditions had firmed a little over recent months. As a result, it was appropriate to leave the cash rate unchanged at this meeting.
• The probability of a rate cut had increased substantially in recent weeks following increases in market mortgage rates and low inflation. In the statement accompanying the rate decision, the Bank said that “inflation is low and should remain so”, therefore the prospects of a cut at their December meeting is still on the table. It will be important to see how much the underlying inflation is lowered in the Bank’s Monetary Policy Statement to be released on Friday to better assess the future path of policy. AUD/USD plunged ahead of the release but surged afterwards as the Bank stayed pat. The shift to an easing bias and the prospects of a rate cut are likely to put AUD under renewed selling interest in the near future, in my view.
• Today’s highlights: During the European day, we have a relatively light calendar day. The UK construction PMI for October is expected to have declined to 58.8 from 59.9 in September. Investors pushed back rate hike expectations from the Bank of England after a recession in manufacturing and a slump in construction output slowed the UK economy more than expected. Nevertheless, manufacturing PMI beat estimates of a slight deterioration on Monday and showed strong growth for October. As a result, another positive surprise in the construction index is likely to add to evidence that the economy started to improve in Q4 and may support to GBP.
• In the US, factory orders for September are expected to have fallen again, but at a slower pace than in August.
• In late US session, New Zealand’s employment report for Q3 is coming out. The forecast is for the unemployment rate to increase a bit, which could put NZD under renewed selling pressure.
• We have three speakers on Tuesday’s agenda: ECB President Mario Draghi and SNB Chairman Thomas Jordan. ECB Draghi’s speech is likely to help investors to understand in what extent to adjust their expectations for further easing at the December meeting. We will be also watching SNB’s Jordan’s speech for clues on whether he believes further rate cut would be appropriate.