Aussie rises post RBA and data, TRY extends its moderate gains

Summary:

• Australian dollar gains momentum following RBA meeting along with another signal regarding second quarter GDP

• TRY extends its yesterday’s gain made in the aftermath of the central bank’s report

• US dollar steadies, Asian stocks drive higher

The Reserve Bank of Australia meeting was the paramount point during the Asian session in spite of the fact that nobody had expected any changes to forward guidance let along interest rates. Indeed, the central bank stayed on hold but the Aussie jumped a little as the statement seemed to look marginally less dovish as it contained two important questions. Overall, the RBA reiterated that household consumption remains a major source of uncertainty, wage growth remains low but it is expected to gradually pick up or that low rates are supporting of the economy. These are lines we perfectly know albeit the bank decided to underline a reference pertaining to the domestic housing market. It wrote that housing markets in Sydney and Melbourne have slowed again. Furthermore, it also refrained from showing expressing more concerns with regard to the global trade situation. The bank also alluded to the latest rises of mortgage rates by Westpac (and some other private banks too) writing that in despite these hikes the average rate is still lower than it was a year ago highlighting that financial conditions keep supporting both consumers and businesses. As far as the exchange rate is concerned, the bank repeated that the AUD remains in a range while the latest falls against the US dollar matched the overall strength of the latter. The RBA did not make any remarks regarding a political tailspin which saw PM Turnbull stepping down.

In addition to the RBA meeting we were also offered another input to the Q2 GDP release due tomorrow. Namely, net exports added 0.1 percentage points to growth in the past quarter mainly thanks to strength in rural goods, energy and tourism. The GDP report will be published overnight and is forecast to show a 0.7% QoQ increase compared to 1% registered during the first three months of the year. A bit less upbeat data concerned the current account data for the second quarter as it produced a deficit of 13.5 billion AUD falling short of the median estimate pointinting to a shortfall of 11 billion AUD. However, the details look somewhat more encouraging as we saw rising goods export volumes by 1% driven chiefly by rural produce and commodities. Services continued to perform well too.

The EURAUD looks in a position to resume falling in the upcoming days given the current technical landscape. If so, one could count on a decline even toward 1.5620 but the level of 1.5850 could play a role as well. Source: xStation5

When it comes to EM currencies one needs to single out the Turkish lira as it is gaining against the dollar around 0.5% as of 6:55 am BST. Improved moods surrounding the lira came following the central bank’s statement in which it signalled that rates could be lifted at the September’s meeting after inflation surged last month fuelled by the weak currency. Even as the lira has performed well since Monday one needs to be aware that investors’ scepticism is unlikely to subside hence the lira could be offered until the central bank gets bank credibility - the outstandingly tough task.

On the equity front we may notice that Chinese stocks have gained momentum at the end of trading even as they were trading lower earlier. As a result the Shanghai Composite is adding 0.8% while the Hang Seng (CHNComp) is rising 0.2% as of 6:51 am BST. Keep in mind that US tariffs on $200 billion of Chinese goods could steer moods during the second half of the week. The US bond market opened unchanged after a holiday on Monday with the 10Y yield moving around 2.86% this morning.