RBA raise rates but vote closer than expected at 5-4

Good morning

RBA did indeed raise rates 25bps to 4.1% in the early hours of this morning, citing higher domestic inflation risks as well as possible higher inflation as a result of the Middle East crisis  The move pushed AUD higher despite being widely expected.  AUDNZD is above 1.2100 for the first time in thirteen years and GBPAUD dipped to 1.8765 on the announcement.  However GBPAUD soon turned around, trading up to 1.8875 before settling back at current levels around 1.8830, the failure of AUD to really follow through is likely down to the vote that was perhaps closer than expected at 5-4. 

The question now is whether RBA also raise rates at the May meeting.  There is plenty of data between now and then but the close vote this time may be just enough to put doubt in the minds of even the most hawkish forecasters.  Ultimately, the decision could come down to how long the Iranian war goes on and the lasting impact it has on energy pricing. 

USDJPY has seen a high this morning of 159.50 but is off those highs as I type, pushed down but a generally softening US dollar as well as by comments from Japan FinMin Katayama who said FX moves are not in line with fundamentals, raising the potential for intervention although action seems unlikely for now.  That softer USD has seen GBPUSD trade as high as 1.3340 while EURUSD regained the 1.1500 level.  Equities had a reasonable day yesterday but futures prices suggest some of those gains will be given up today.  Oil prices remain elevated, around the $100 area.

Trump has postponed his China trip for a month or so saying it would be better for him to be in the US as the Iranian war continues.  He still sees a reasonably quick end to the war, telling reporters it will soon be over, although not this week.  There is no doubt Iranian forces are hugely damaged although we’re still seeing drone and missile attacks in the region which suggest Iran and their allies are not completely devastated.  No sign of a regime change which is what Trump and Israel would really like to see.

No rate meetings on the calendar today, in fact there isn’t much in the way of major data today.  Things could pick up tomorrow with both BoC and FOMC rate meetings although ‘no change’ still seems to be the most likely outcome.  Even the dovish Fed forecasters who had been looking for a rate cut are now looking at inflationary risks from the Iran conflict and working out now may not be the right time for rate cuts.

Arsenal, Chelsea and Man City are all in action this evening in the Champions League.  Arsenal are in the best position having drawn with Leverkusen in the first leg, while Chelsea and Man City need to overturn a three goal deficit if they are to proceed to the quarter finals.  Chelsea meanwhile have been fined over £10m for irregularities over payments in transfer negotiations, it’s a hefty amount but they’ve got off a lot lighter than they could have done, particularly given their success during the seasons the charges related to.  They still face some 70+ charges so they’re not out of the woods yet but so far they’re getting away with it.  It does remind us that Man City are facing many charges but that seems to have slipped out of the public eye.

Have a great day…

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