The Aussie dollar has kicked off the week on an encouraging note driven by heightened risk appetite on the back of last week’s positive data from the States. Overnight equity markets in the US reacted positively to Friday’s jobs data which showed the US economy created 162,000 new jobs in March, outstripping the previous month’s contraction of 36,000. Economists had predicted growth of 184,000 newly created jobs.
We also saw strength from the ISM Non-Manufacturing Index which surpassed estimates to record a level of 55.4 in March against the expected rise to 53.3 – This represents the highest level since November 2007. US pending Home Sales surged 8.2 percent in February from a previous contraction of 7.8 percent.
Locally, we have a reasonably busy day on the domestic market with the RBA interest rate decision to be announced at 14.30 AEST. Money markets are factoring in between 50 – 60 percent chance of a rate rise when the Reserve bank meets today, however economists remain divided with 14 of 23 economists surveyed now predicting a 25 bps rate hike. We can expect the board today to be chewing the fat on recent economic feedback which provides mixed signals on whether rate hike is warranted. Last week Governor Glenn Stevens stressed the importance of interest rates to return to a normalised state given house prices are “getting too high.”
But we have also seen some consolidation of other important indicators such as February retail sales result which contracted 1.4 percent in February against the expected rise of 0.3 percent. Building approvals also disappointed to fall 3.3 percent in February against an expected 2.1 percent growth. At the time of writing the Aussie is buying 92 US cents - with today’s interest rate decision looking very much like a line-ball call, we can expect the Aussie to be highly reactive with significant downside expected in the event of rates remaining at 4 percent.