Aussie strengthens as the week starts on the back of stronger than expected retail sales data. Sales rose 0.8% mom in September versus consensus of 0.4% mom. Prior month's figure was also revised up from 0.4% mom to 0.5% mom. Solid services data from China also gave it a mild boost. The non-manufacturing PMI index rose to 56.3in October, highest level this year and suggested that growth momentum in China remained robust. Also supporting the Aussie was comment from ANZ bank CEO Michael Smith, who noted that there won't be a massive reduction in Aussie's strength until tapering in US. And, he expected tapering won't happen until "well into next year". The Aussie was indeed the strongest performer in October as markets started expect delay in Fed's tapering and it remained the strongest one so far this month as speculation of ECB rate cut gave it a boost in crosses. Nonetheless, with 0.9525 minor resistance intact, near term bias in the AUD/USD remains mildly on the downside.
Euro's fall resumes today with EUR/USD taking out 1.3472 support. ECB rate decision will be a major focus this week. The much lower than expected inflation reading, at 0.7% yoy in October, comparing to ECB's target of 2%, triggered some speculations that the central bank will cut rates again as soon as this week. UBS, RBS and BofA are among those who are expecting a cut on November 7. But, the majority of the markets still believed that ECB will keep rates unchanged this week and hold fire until December. By then, ECB will release the latest staff projections on inflation and growth.
Sterling remains soft despite some positive news over the weekend. The Confederation of British Industry raised its growth forecast for UK in its quarterly report. CBI expected 1.4% growth in UK GDP in 2013 and 2.4% in 2014. That were upward revisions from prior forecast of 1.2% and 2.3% respectively. Meanwhile, it expected unemployment rate to fall to 7.2% by the end of 2015. CBI Director General John Cridland said that "the recovery won’t be spectacular, just slow and steady, but appears more solid and better-rooted." CBI also expected business investments to pick up over the next two years and beyond. Net trade is also expected to have a stronger contribution to growth.
In the US, Dallas Fed Fisher blamed that the US governments has "played a countercyclical, suppressive role" in the current recovery. And the criticized that "the inability of our government to get its act together has countered the pro-cyclical policy of the Federal Reserve." He noted that US GDP would have risen at 3.2% had government expenditure increased as the same pace as private. Or, if government spending had just been held constant, GDP growth would be at 2.6. That compared to the current 2.2% growth. Regarding tapering, Fisher said it will depend on strength of economic data.
Later today, PMI manufacturing data from Italy and Eurozone will be released with Sentix Investor confidence. UK will release PMI construction. US will release both August and September factory orders. Other key events to watch this week include:
- Tuesday: RBA rate decision; Swiss PMI; UK PMI services; US ISM services
- Wednesday: New Zealand employment; Australia trade balance; Eurozone services PMI; UK manufacturing production; Canada Ivey PMI
- Thursday: Australia employment; BoE rate decision; ECB rate decision; US GDP
- Friday: China trade balance; Canada employment; US employment, personal income and spending