RBA keeps rates unchanged, May ready to make new Brexit offer to the EU

Summary:

• Australian central bank leaves monetary policy settings unchanged

• UK PM May prepares to make a new Brexit offer to the EU

• Asian stocks mixed, US dollar modestly higher

Amid a relatively empty macroeconomic calendar during Asian trading it is worth keeping a closer eye on Australia where the central bank kept interest rates unchanged another month in a row. The statement did not changed at all thus it included two major (and AUD negative) points. The first one is that household consumption remains a source of uncertainty and the second one states that wage growth remains low, and it likely to continue weaker for a while. On top of that the Reserve Bank of Australia said that GDP growth will average a bit above 3% in this and the following year while the outlook for the labour market remains positive. It also acknowledged that housing markets in Sydney and Melbourne have slowed down disregarding implicitly the latest mortgage rate increase in the biggest domestic banks. Having said that, the central bank admitted that credit conditions are currently tighter than they have been for some time (in spite of the fact that the RBA has not increased rates for many years). As far as the exchange rate is concerned the bank wrote in the statement that it has fallen against the USD along with most other currencies. Beside the thread concerning the RBA we also were offered CBA/PMI for manufacturing which came in at 54 points for September compared to 53.2 points in the previous month. An overall impact on the Aussie has been slightly bearish thus far as it is trading roughly 0.2% lower against the greenback in early European trading. To sum up, the RBA will not change its policy at least until the half of the next year barring some unexpected shocks to the economy.

The AUDUSD is driving moderately lower in the morning following the RBA meeting as well as the PMI reading. By and large, it mainly stems from the stronger US dollar being traded 0.15% higher at the time of writing. From a technical standpoint one may assume that pair could try to move toward 0.7090 or so where the more recent low has been established. Source: xStation5

After the yesterday’s spike in response to fresh developments as for Brexit, the British pound is being slightly offered today. It is happening despite quite promising revelations concerning a deal with the EU. Namely UK Prime Minister is preparing to make a significant new Brexit offer to the European Union attempting to seal a deal before the year end - such information was brought by Bloomberg which cited a senior British government official. As it was said, a concession to the EU aims at breaking the deadlock in negotiations where a thread pertaining to Northern Ireland and the Republic of Ireland remains the prime sticking point (the problem is how to avoid the need for customs checks and a hard border between the two regions). What is May going to put forward to the EU? According to Bloomberg under the new plan she is likely to propose that the UK will back down on its opposition to new checks on goods moving between the British mainland and Northern Ireland. In exchange, the UK will need to allow the latter to stay in the block’s customs regime as part of the temporary backstop. The new plan is likely to be sent to the EU later this month. Let us note that Toyota has already announced that it will temporarily shut a UK factory citing a supply chain disruption as a main reason if a so-called hard Brexit happens.

After a short-lived pop seen in the GBP yesterday nothing remained. As a result the pair is likely to continue moving lower even toward 1.2700. Source: xStation5

In the other news:

• Hang Seng loses over 2% after the market reopens following a holiday on Monday

• Overnight HIBOR (the O/N rate for the Hong Kong dollar) plunged to 1.22% from 3.88% during the session

• US dollar index trades almost 0.2% higher while the 10Y yield moves subtly above 3.07%