FOREX: Aussie Dollar Ignores Mildly Hawkish RBA, Falls with Risky Assets

The Australian Dollar dropped against its top counterparts, looking past a mildly hawkish streak in today's RBA policy announcement to follow stocks lower.

Overnight Headlines

• Australian Dollar Ignores Mildly Hawkish RBA, Falls with Risky Assets
• US Dollar, Japanese Yen Rise on Safety Demand as Asian Stocks Slump

Critical Levels

CCY	SUPPORT	RESISTANCE
EURUSD	1.4690	1.4878
GBPUSD	1.6311	1.6697

The Euro and the British Pound sold off in overnight trade, down 0.5 percent each against the US Dollar. The greenback pushed broadly higher as risk aversion gripped Asian bourses, feeding safe-haven demand for the benchmark currency. The Japanese Yen – another go-to safety asset in the FX space – likewise advanced.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
22:45	NZD	Private Wages ex Overtime (QoQ) (1Q)	0.4%	0.5%	0.6%
22:45	NZD	Average Hourly Earnings (QoQ) (1Q)	0.3%	0.5%	0.6%
22:45	NZD	Private Wages Inc Overtime (QoQ) (1Q)	0.4%	0.6%	0.6%
23:01	GBP	Lloyds Business Barometer (APR)	30	-	1
1:00	CNY	China Non-manufacturing PMI (APR)		-	60.2
4:30	AUD	Reserve Bank of Australia Rate Decision	4.75%	4.75%	4.75%

The Australian Dollar underperformed in overnight trade, down as much as 0.5 percent in overnight trade, as stocks sold off across Asian exchanges and weighed on the sentiment-linked currency. A tame monetary policy announcement from the Reserve Bank of Australia compounded selling pressure, with policymakers keeping rates at 4.75 percent and reiterating that their current posture remains “restrictive” and suggesting that GDP may have fallen in the first quarter amid mine closures following the floods in Queensland.

A hawkish streak did emerge however, as RBA Governor Glenn Stevens suggested the poor performance in the three months through March may be offset by a boost later in the year from the post-flood rebuilding effort, with overall growth “to be at trend or higher.” The addition of the “or higher” component represented a significant change in language from recent policy statements, as did a pledge to “assess carefully the evolving outlook for growth and inflation” in future meetings, hinting the possibility for rate hikes may be back on the table sooner than previously expected. Still, the markets continue to price in just one increase in the benchmark lending rate over the next 12 months as they did before the RBA announcement came across the wires, according to data from Credit Suisse.

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
8:30	GBP	Purchasing Manager Index Manufacturing (APR)	57.0	57.1	Medium
9:00	EUR	Euro-Zone Producer Price Index (MoM) (MAR)	0.7%	0.8%	Medium
9:00	EUR	Euro-Zone Producer Price Index (YoY) (MAR)	6.6%	6.6%	Medium
10:00	GBP	CBI Reported Sales (APR)	15	15	Low

A tame economic data docket leaves the door open for risk sentiment trends to take control of currency markets once again, with European stock index futures pointing sharply lower ahead of the opening bell and hinting the safety-linked US Dollar and Japanese Yen will continue to outperform at the expense of risk-correlated currencies.

Scanning the calendar, UK Manufacturing PMI figures are expected to show that growth in the sector slowed for the third consecutive month in April, reinforcing expectations that the Bank of England will keep rates on hold later this week. Meanwhile, Euro Zone PPI data are forecast to put wholesale inflation at 6.6 percent in March.

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