Reserve Bank's of Australia decision, the US Manufacturing PMI (S&P) and more - Tuesday, November 1st on markets

Inflation slowdown may let Reserve Bank of Australia go for 50bp or inaction

Tuesday 01 November

Saints' Day is celebrated in European Catholic countries: banks are closed in them, which will affect the volume of trading in financial markets - they will be lower than usual.

Australia. RBA meeting and interest rate decision. RBA accompanying statement

During the May meeting, RBA leaders made a surprise decision to raise the interest rate to contain inflation, which reached a 20-year high (in the 1st quarter of 2022, headline annual consumer price inflation in Australia was 5.1%, and core inflation was 3.7 %, with the target RBA level of 2% - 3% per year). The interest rate was raised by 0.25%, to 0.35%, for the first time in the last 11 years, and the forecast assumed an increase of only 0.15%.

As it said in an accompanying statement, "with the move towards full employment and data on prices and wages, some scaling back of the emergency monetary support provided during the pandemic is appropriate" and "the (central bank) board will do everything necessary to so that, over time, inflation in Australia will return to the target level." "This will require further interest rate hikes going forward," RBA Governor Philip Lowe said.

In June, the interest rate was again raised to 0.85%, in July to 1.35%, in August to 1.85%, and in October to 2.60%. At the same time, economists expect that the RBA will continue to raise interest rates, at least until the end of this year. This, in turn, creates prerequisites for the strengthening of the Australian dollar.

It is possible that at this meeting the Central Bank of Australia will again raise the interest rate, although unexpected decisions are possible, for example, a decrease or a stronger increase in the interest rate.

It is likely that the AUD will react positively to the decision to raise the interest rate, as market participants will receive confirmation of the seriousness of the RBA's intentions in its desire to tame the rising inflation in the country and reach the level of 2.05% - 2.6% by the end of the year, however, provided that the accompanying statement will not contain unexpected statements, for example, about the need to take a break before a further increase in the interest rate.

In any case, during the announcement of the RBA's decision on the interest rate, an increase in volatility in AUD quotes is expected.

If the RBA's accompanying statement signals a wait-and-see attitude, the Australian dollar is likely to come under pressure. However, the reaction of the market to the decisions of the RBA regarding the interest rate in the current situation may turn out to be completely unpredictable.

The level of influence on the markets is high.

UK. Index (PMI) of business activity in the manufacturing sector (final release)

The UK Manufacturing PMI (from S&P Global) is an important indicator of the health of the UK economy. If the data turns out to be worse than the forecast and the previous value, then the pound is likely to fall sharply in the short term. Data better than the forecast and the previous value will have a positive impact on the pound. At the same time, a result above 50 is considered positive and strengthens the GBP, below 50 is considered negative for the GBP.

Previous values: 48.4, 47.3, 52.1, 52.8, 54.6, 55.8, 55.2, 58.0, 57.3.

The preliminary score was: 45.8.

The level of influence on the markets (final release) is average.

Canada. Business activity index (PMI) in the manufacturing sector

The monthly S&P Global report publishes (among other data) the PMI in the manufacturing sector of the Canadian economy, which is an important indicator of the state of this sector and the Canadian economy as a whole. A result above 50 is seen as positive and strengthens the CAD, below 50 as negative for the Canadian dollar. The data above the value of 50 indicate an acceleration of activity, which has a positive effect on the quotes of the national currency. If the indicator falls below the forecast and, especially, below the value of 50, the dollar may sharply weaken in the short term.

Previous indicator values: 48.7, 52.5, 54.6, 56.8, 56.2, 58.9, 56.6, 56.2 (in January 2022).

The level of influence on the markets is average.

USA. Manufacturing PMI (from S&P Global) (final release)

The monthly S&P Global report releases (among other data) a composite PMI index and PMI indices in the manufacturing sector and in the services sector of the US economy, which are an important indicator of the state of these sectors and the US economy as a whole. A result above 50 is considered positive and strengthens the USD, below 50 is considered negative for the US dollar. The data above the value of 50 indicate an acceleration of activity, which has a positive effect on the quotes of the national currency. If the indicator falls below the forecast and, especially, below the value of 50, the dollar may sharply weaken in the short term.

The previous values of the PMI indicator in the manufacturing sector were 52.0, 51.5, 52.2, 57.0, 59.2.

The preliminary score was: 49.9.

The level of influence on the markets of this S&P Global report (final release) is medium. It is also lower than the similar report from ISM (American Institute of Supply Management)

USA. Business activity index (PMI) in the manufacturing sector

The monthly report of the Institute of Supply Management (ISM) publishes (among other data) the PMI index of manufacturing activity in the US economy, which is an important indicator of the state of this sector and the American economy as a whole. A result above 50 is considered positive and strengthens the USD, below 50 is considered negative for the US dollar. The data above the value of 50 indicate an acceleration of activity, which has a positive effect on the quotes of the national currency. If the indicator falls below the forecast and, especially, below the value of 50, the dollar may sharply weaken in the short term.

Previous indicator values: 50.9, 52.8, 53.0, 56.1, 55.4, 57.1, 58.6, 57.6 (in January 2022).

Forecast for October: 50.4.

The level of influence on the markets is high.

New Zealand. Dairy Price Index

This leading indicator of a country's foreign trade balance reflects the weighted average price of 9 dairy products sold at an auction organized by Global Dairy Trade (GDT) in percentage terms and is usually published every 2 weeks.

The economy of New Zealand still has signs of raw materials in many respects, and the bulk of New Zealand's exports are dairy products and food products of animal origin (27%, according to 2020 data). Therefore, the decline in world prices for dairy products has a negative impact on NZD quotes, as it signals a decrease in export earnings coming to the New Zealand budget.

Conversely, an increase in the dairy price index has a positive effect on the NZD.

Previous values: -4.6%, +2.0%, +4.9%, -2.9%, -5.0%, -4.1%, -1.3%, +1.5% , -2.9%, -8.5%, -3.6%, -1.0%, -0.9%.

The level of influence on the markets is from low to medium.

Australia. Index (PMI) of business activity in the manufacturing sector (from AiG)

This report from the Australian Industry Group AiG is an analysis of a survey of 200 purchasing managers that asks respondents to rate the relative level of business conditions, including employment, production, new orders, prices, supplier deliveries and inventory. Since purchasing managers have perhaps the most up-to-date information on the situation in the company, this indicator is an important indicator of the state of the German economy as a whole. This sector of the economy forms a significant part of Australia's GDP. A result above 50 is seen as positive and strengthens the AUD, below 50 as negative for the Australian dollar. Data worse than the forecast and/or the previous value will have a negative impact on the AUD.

Previous values: 50.2, 49.3, 52.5, 54.0, 52.4, 58.5, 55.7.

The level of influence on the markets is average.

New Zealand. Data from the labor market of the country (for the 3rd quarter)

The New Zealand Bureau of Statistics is to publish a report containing important data on the state of the labor market, which are of critical importance (along with data on GDP and inflation) for the country's central bank when deciding on the parameters of the current monetary policy.

The employment rate reflects the change in the number of employed New Zealanders. The growth of the indicator has a positive impact on consumer spending, which stimulates economic growth. A high reading is positive for NZD, while a low reading is negative.

Previous (quarterly) changes in the employment rate: 0%, +0.1%, +0.1%, +1.9%, +1.0%, +0.6% (in the 1st quarter of 2021) .

The unemployment rate is an indicator that assesses the ratio of the share of the unemployed population to the total number of able-bodied citizens. The growth of the indicator indicates the weakness of the labor market, which leads to a weakening of the national economy. The decrease in the indicator is a positive factor for the NZD.

Previous (quarterly) values: 3.3%, 3.2%, 3.2%, 3.3%, 4.0%, 4.6% (in Q1 2021).

The level of influence on the markets is medium to high.

Japan. Minutes of the meeting of the Monetary Policy Committee of the BOJ

This document, which is a detailed account of the latest meeting of the leadership of the BOJ, provides insight into the economic conditions that influenced its decision on the parameters of the current monetary policy.

If the BOJ is positive about the state of the labor market in the country, the GDP growth rate, and also shows a hawkish attitude towards the inflationary forecast in the economy, the markets regard this as a possibility of a rate increase at the next meeting, which is a positive factor for the JPY. The soft rhetoric of statements by the bank's leaders regarding, first of all, inflation will put pressure on the Japanese yen.

The BOJ continues to adhere to its ultra-soft monetary policy. As Kuroda has repeatedly stated earlier, "it is appropriate for Japan to patiently continue the current loose monetary policy."

If the minutes contains unexpected or additional information regarding the monetary policy of the BOJ, then the volatility in JPY quotes will increase.

The level of influence on the markets is from low to high.

Relevance up to 10:00 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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Inflation slowdown may let Reserve Bank of Australia go for 50bp or inaction

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