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Busy calendar in Australia - Westpac

FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, breaks down the key releases for Tuesday, highlighting the RBA monetary policy decision, Australia's retail sales and the ABS announcement on revised estimates of seasonally adjusted employment and unemployment from Dec 2013 to Sep 2014.

Key Quotes

Australia’s busy calendar today (11:30am Syd/8:30am Sing/HK) became even more crowded yesterday when the ABS announced it would reveal revised estimates of seasonally adjusted employment and unemployment from Dec 2013 to Sep 2014. This could produce sharp changes in individual months though shouldn’t really alter the overall picture of the labour market. Once we see the revised data, our Economics team will formulate a forecast for the Oct data due Thursday.

The data releases (at the same time) are also well worth watching, probably holding more potential to move AUD than the RBA statement. Westpac agrees with consensus for Sep retail sales to have risen 0.3% m/m, after a muted 0.1% gain in Aug, with the breakdown showing weakness outside food retailing and restaurants, not a good sign. In the same release we will see the inflation-adjusted Q3 retail sales reading, which is coming off a very low base: Q2 was -0.2% q/q. We look for 0.5% q/q, also in line with the median forecast but prone to surprise.

Market forecasts for the Sep trade balance range widely (-A$2.6bn to -$0.2bn). The forecasts for the deficit to narrow from Aug’s -0.8bn seem heroic, perhaps ill-informed, since the ABS has already released data showing a 6.9% m/m surge in imports of goods, which alone adds $1.5bn to the deficit. We look for total imports to have risen 5.5% while exports are expected to have slipped -1% m/m, mostly due to lower iron ore prices. This gives Westpac the most bearish forecast, -$2.6bn but one we are comfortable with.

There is little tension over the RBA Board meeting (2:30pm Syd/11:30am Sing/HK). Since the last meeting, the Q3 CPI was not a game changer, housing remains solid but not necessarily bubbly while employment has been simply confusing. We look for the retention of key phrases: AUD “remains high by historical standards” and “the most prudent course is likely to be a period of stability in interest rates.” The statement should pass with little or no market impact. Friday’s Statement on Monetary Policy should be more enlightening on whether markets should be pricing a 40% chance of another rate cut by July 2015.

The European Commission is due to release updated forecasts. In May, the EC declared that economic recovery was becoming more broad-based, that it had “taken hold”. They forecast 1.2% GDP growth in 2014, accelerating to 1.7% in 2015. These forecasts obviously need to be slashed.

The bi-monthly Global Dairy Trade Auction takes place during London trade. My colleague Imre notes that predicting auction outcomes is tough, with even insiders not enjoying much success, but we could see modest price gains for whole milk powder this time. Auction supply has been reduced by Fonterra, and there may be seasonal demand from China. SMP prices may fall further though, on EU supply. Beyond this auction, the outlook for the next few months doesn't look promising.

The US data calendar is low key: Nov small business optimism, Sep trade balance and Sep factory orders, the latter mostly known as we have seen durable goods orders already. US mid-term elections take place Tuesday, with results due in Asia Wednesday. See our preview: US midterm elections and the markets (28 Oct).

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