Market Drivers for December 1, 2015
Europe and Asia
AUD: Building Approvals 3.9% vs. 2.4%
CNY: PMI Manufacturing 49.6 vs. 49.9
EUR: GE Unemployment -13K vs. -4K
GBP: PMI Manufacturing 52.7 vs. 53.6
North America
CAD: GDP 8:30
USD: ISM Manufacturing 10:00
Commodity dollars exploded in Asian and early European trade with the Aussie coming within a whisker of the .7300 figure while the kiwi barrelled through the .6600 barrier.
The RBA statement showed little change as the central bank remained neutral, keeping rates at 2.00%, but that was not the reason for the rally. The rally had started earlier in the session after a strong jump in building approvals, which rose to 3.9% from -2.4% eyed and more importantly, a surprisingly robust read in exports data that hints at a better than expected GDP reading tomorrow.
As to the RBA, the central bank noted that "moderate expansion in the economy continues" despite "a large decline in capital spending in the mining sector." This has been perhaps the greatest surprise out of Australia as the economy has been able to shift growth from mining to services and remain at a steady expansionary pace in the face of declining demand from China.
One critical boost has been the consistent flow of Chinese investment capital into the real estate sector and the RBA is no doubt mindful of the fact that any further lowering of rates could fuel another bubble in housing. For that reason, monetary officials remain reluctant to ease further and that has brought yield-hungry specs back into the Aussie.
The kiwi followed suit, gaining nearly 100 points on the night as it popped through the .6650 level. The market still anticipates a rate cut in December from the RBNZ but the consensus may be in doubt, especially if today's dairy auction shows a rebound in price. If however the auction shows a decline for the fourth month in a row, much of today's kiwi gains could be reversed in North American trade.
Elsewhere, in Europe, German unemployment data saw a surprise decline of -13K versus -4K as the unemployment rate reached a record low of 6.3%. The EUR/USD popped above the 1.0600 level but quickly gave up its gains as the pair remains very heavy on the assumption that the ECB will announce an aggressive QE program at this Thursday's meeting.
In North American trade, all focus will be on the ISM Manufacturing report due at 1400 GMT. The market is looking for a rise to 50.6 form 50.1 the month prior, but yesterday's shocking decline in Chicago PMI readings has traders on edge. If the ISM data misses its mark, or worse prints below the 50 boom/bust line, the dollar could come under much more serious profit taking as fear about another delay in monetary policy normalization will begin to spread.
For now the narrative of a December rate hike remains on track, but if US data begins to falter market sentiment could shift quickly.