Australia Focus : Cloudy With A Chance of More Clouds

A last minute rally saved the week to give us the benign ending that masked the trials and tribulations in between.

The action revolved around the slew of positive economic data, central bank talk and actions that, oddly enough, spared the AUD of the crazy price action we saw in the other majors like the EUR, GBP and JPY as volatility abated and the AUDUSD managed to close the week 1.42% stronger against the USD even as RBA Governor Stevens tried to talk the currency down and the RBNZ cut their benchmark rate to 3.25% very unexpectedly for the AUDNZD to break 1.10 again (low 1.0021, 6 April 15)

*RBA: OPEN TO FURTHER EASING IF BENEFICIAL TO SUSTAINABLE GROWTH
*STEVENS: INFRASTRUCTURE SPENDING HAS ROLE IN SUSTAINING GROWTH
*STEVENS: ECONOMY COULD DO WITH MORE DEMAND GROWTH NEXT 2 YEARS
*STEVENS: POLICY'S MARGINAL EFFECT MAY BE SMALLER WHEN RATES LOW
*STEVENS: MONETARY POLICY ALONE CAN'T DELIVER EVERYTHING WE NEED
*STEVENS: DECISION-MAKING PROCESS IS IMPEDING INFRASTRUCTURE
*RBA'S STEVENS: A$ EXCHANGE RATE NEEDS TO FALL FURTHER

Table of major economic releases

Also positive were iron ore prices which rose to a 5 month high which really builds a case to trade the AUD on the long side into next week as we head into the FOMC (18 Jun 2 AM SG time) and I expect position squaring before the big day. Before that we also have the RBA June minutes on 16 Jun (930 AM SG time) which could back up Stevens’ comments.

The AUDUSD still appears to be caught in a sideways market that is good for range trading.

For the medium term, the outlook remains cloudy and I quote a Business Spectator article citing that current growth is running on 3 main aspects “consumption funded from savings, exports of iron ore and housing construction — add up to a 3.6 per cent contribution to GDP growth. Everything else detracted 1.3 per cent”.

The outlook for hard commodities is still under pressure as MOODY’S revised Western Australia’s Aa1 outlook to negative.

Thus whilst demand for short end bonds appears to be faltering, I am still bullish for the longer tenors.

Aussie 10Y yields broke a 6 month high of 3.15% on 11 Jun after a positive employment number, curve steepening to a 1 year high for the 3-10Y, before rallying back strongly on Friday to close the week lower which is a good sign.

We saw Optus (Singtel, A1) come out with a rare 7 year paper at a yield of 4.2% for A$ 200 mio which is not bad considering that their 6.5 year paper in SGD is only giving about 2.72%.

Leaving off with the indicative prices.