Article / 02 August 2016 at 2:45 GMT

Morning Report APAC: AUD lower ahead of RBA rate decision

APAC Sales Trading Desk / Saxo Capital Markets

  • Market pricing in 74.5% chance of rate cut from RBA, to record low of 1.50% 
  • AUD could go lower on cut but rest of move will depend on statement afterwards
  • Iron ore surged above $60/tonne
  • WTI future traded briefly below $40/barrel


By Saxo APAC Sales Trading

Economic data of the day (Singapore Time)



1815: USD – Fed's Robert Kaplan Speaks on Monetary Policy in Beijing

Overnight news


  • US manufacturing activity was mixed during July. The final reading of Markit's PMI jumped to 52.9 (Mkt est: 52.9) from 51.3 in June, however the Institute for Supply Management Manufacturing Index slipped to 52.6 (Mkt est: 53.0) from 53.2. 
  • ISM new-orders index edged down to 56.9 from 57.0, the production index improved to 55.4 from 54.7, the new export orders index dropped to 52.5 from 53.5 and the employment index declined to 49.4 from 50.4. A total of 11 industries tracked by ISM reported growth led by textile mills, and seven sectors reported contraction including appliances and transportation equipment.


  • The RBA meets today and the market is pricing in a 74.5% chance of a cut, to set the rate at a record low of 1.50%. Philip Lowe takes over as new RBA Governor in seven weeks and the government focuses on reducing a budget gap and preserving the country’s AAA rating.


  • The EC said it would hold a dialogue with the European Parliament next month on the potential suspension of structural funds for Spain and Portugal. The two countries last week escaped fines for missing budget targets.


Foreign exchange



  • AUDUSD found good selling interest at 0.7600 with the market pricing more cuts for the RBA meeting today. We could see another 50 pips lower on a cut but the rest of the move will depend on the statement afterwards. The main resistance is at 0.7600/0.7650 and there is nothing below until the 200 day moving average at 0.7631. The risk reward still favours short at this level .
  • NZD dropped overnight, finding good supply at 0.7200 following the strong rally seen on Friday. Yesterday the NZ Treasury said that second-quarter GDP was stronger than expected. 
  • GBP remains heavy ahead of the Bank of England meeting this week, pricing in already a 25 basis point cut. Some economists even see 50 bps and more quantitative easing. The main support to break is at 1.3000 .
  • USDCAD rallied on the back of lower oil overnight. We are seeing two ways of thinking for USDCAD, with many ideas floating around to be long USD. But the main resistance at the 200-day moving average at 1.3315 holds well for the moment and unless oil prices go into a freefall, we should see good selling on rallies.

Foreign exchange movements


  • Funds have been buying AUD gamma for the RBA meeting today. 
  • There is still decent buying interest in the two months area in USDJPY for the next Bank of Japan meeting.



  • Microsoft is planning a $19.8 billion bond sale. The software maker will use proceeds from the third-largest US corporate-debt deal this year to help finance its $26.2 billion takeover of LinkedIn, sources said. The longest portion of the seven-part offering is a 40-year bond that yields 1.8 percentage points above treasuries. 
  • The first offshore rupee bond was listed in London, easing concerns that Brexit may diminish the city’s role in global finance. HDFC’s 30bn rupees ($450m) of August 2019 notes will trade on the London Stock Exchange. The offering is the first issued overseas by an Indian company.


  • Treasuries retreated even as the key manufacturing data provided a cautious third-quarter outlook for the US economy. The two-year note yield climbed 2.4 bps to 0.679%. The 10-year bond yield is rallying 5.6 bps to 1.509%. 
  • Market pricing for a rate hike was little changed with 20% and 40% chance, respectively, of a cut in September and December.
  • William Dudley, president of the New York Fed, commented on Monday that the market shouldn’t be ruling out the possibility that the Federal Reserve will hike interest rates again this year. 
  • Spanish 10-year yields fell to a record low, approaching 1%, as the country struggled to form a government. 
  • The Bank of England meeting will be on Thursday and the market is pricing in a 96% probability of a rate cut to 0.25%. It was also reported that speculators are most bearish on sterling, according to US Commoditiy Futures Trading Commission data. All but two of 51 economists in a Bloomberg survey forecast that the BOE Governor will cut the key interest rate from a record-low 0.5%. 
  • In Australia, expectation of a cut soared to 75% prior to the decision today and Australian yields fell to a record low as 10-year yields dropped to 1.831%. 








  • US stocks again closed narrowly mixed amid oil prices extended their slump and further outperformance in the technology segment. The S&P 500 inched down 2.76 points to 2,170.84. Losses in energy led the way while healthcare and tech posted the best performances. The Dow Jones Industrial Average shed 0.15%, to 18,404.51. The Nasdaq added 0.4%, to 5,184.20. 
  • Opinion: While stock markets in US are reaching historical highs, concerns have been raised for the basis. Goldman Sachs Group lowered their rating on US stocks to underweight for the next three months. “Bond King” Jeffrey Gundlach said that many asset classes look frothy and his firm continues to hold gold and gold stocks. 
  • M&A: Verizon Communications Inc. (down 1.6%) agreed to acquire mobile workforce-solutions company Fleetmatics Group PLC in a cash deal valued at ~$2.4bn.The deal was priced at $60 per share, a nearly 40% premium to Fleetmatics closing price on Friday. 
  • The FTSEurofirst 300 index dropped 0.6%, to 1,339.15. The STOXX 600 Banking index lost 1.8% as initial enthusiasm disappointed. In London the FTSE 100 declined 0.45% to 6,693.95 after Markit confirmed a sharp deterioration in British manufacturing activity in the wake of the Brexit vote. 
  • Heineken tanked 3.7% after it reported first-half revenue that missed consensus forecasts due to declining sales in Africa and Eastern Europe, and said that an African slowdown could hurt future earnings. 
  • Wm. Morrison Supermarkets slid 2.3% after the grocer said it is cutting prices by an average of 18% on more than 1,000 items, amid customers' concern about whether food prices will go up following Brexit.

Asia Pacific Stocks

Hong Kong:

Analyst Ratings: 

  •  Alibaba (BABA) cut to “hold” vs “buy” at Standpoint 
  • CLP Holdings (2 HK) cut to “underperform” vs “neutral” at Credit Suisse 
  • Glencore (805 HK) raised to “buy” vs “hold” at Societe Generale 
  • Gome (493 HK) cut to “hold” vs add at CIMB 
  • Gome (493 HK) cut to “underperform” vs “neutral” at Credit Suisse 
  • Li & Fung (494 HK) cut to “hold” vs “outperform” at Daiwa



  • China Development Bank to sell $300m-$800m SDR bonds: Nikkei 
  • China Merchants Bank (3968 HK): 1H preliminary net rises 6.8% from yr ago 
  • Landing Intl (582 HK) expects 6-mo. net loss to widen significantly 
  • Lee & Man Paper (2314 HK) rises to highest since 2010 after 1H results 
  • Sunac China (1918 HK) expects 1H net to drop about 90% on year


Analyst Ratings: 

  • Hogy Medical (3593 JP): Cut to underweight from neutral at Mitsubishi UFJ Morgan Stanley Securities 
  • Itochu (8001 JP): Target price cut 18% by Goldman Sachs 
  • Kintetsu Department Store (8244 JP): Rated new neutral plus at Iwai Cosmo Securities 
  • Komeri (8218 JP): Raised to overweight at Mitsubishi UFJ Morgan Stanley 
  • Medipal (7459 JP): Raised to buy at Nomura 
  • Nintendo (7974 JP): Rated new outperform at Tokai Tokyo Securities 
  • Oriental Land (4661 JP): Raised to neutral at Haitong


  • Aozora Bank (8304 JP): 1Q net income up 12% to ¥13.8bn
  • Ashikaga Holdings (7167 JP): 1Q net income down 17% to ¥6.41bn 
  • Benesse (9783 JP): 1Q oper. loss ¥718m vs ¥623m profit year ago 
  • Central Glass (4044 JP): 1Q operating profit down 8.7% to ¥2.91bn 
  • GMO Internet (9449 JP): 1H operating profit up 2.3% to ¥8.69bn
  • Ibiden (4062 JP): 1Q oper. profit down 67% to ¥1.25bn
  • Itochu Techno-Solutions (4739 JP): 1Q operating profit up 17% to ¥1.98bn 
  • Japan Tobacco (2914 JP): Lifts full-year operating profit forecast 1.1% to ¥572bn vs analyst est. ¥589.8bn 
  • Keyence (6861 JP): 3-month oper. profit up 7.2% y/y to ¥49.2bn; est. ¥48.5bn 
  • Mitsubishi UFJ Financial (8306 JP): 1Q net income down 32% y/y to ¥188.9bn vs est. ¥225bn 
  • NET One Systems (7518 JP): 1Q oper. loss ¥273m vs ¥365m loss year ago 
  • Nichias (5393 JP): 1Q oper. profit up 23% to ¥3.88bn 
  • Nihon Kohden (6849 JP): 1Q oper. loss ¥416m vs ¥132m profit year ago; cuts 1H forecasts 
  • Nippon Soda (4041 JP): 1Q oper. profit down 34% to ¥1.27bn; to buy back up to 3.34% of shares 
  • Nissen (8248 JP): Seven & I to make company wholly owned, Nikkei reports 
  • NOK (7240 JP): 1Q operating profit down 97% to ¥377m 
  • NSK (6471 JP): 1Q operating profit down 45% to ¥14.6bn 
  • Otsuka Corp. (4768 JP): 1H operating profit up 3.3% to ¥23.9bn 
  • Pola Orbis (4927 JP): 1H operating profit up 32% to ¥12.2bn; lifts full-year target 4% to ¥26bn 
  • Showa Shell (5002 JP): Prelim. 1H net profit ¥5.2bn vs earlier forecast ¥4bn loss 
  • Sumitomo Electric (5802 JP): 1Q operating profit down 4.1% to ¥21.2bn 
  • TDK (6762 JP): EPCOS unit pays 78% premium for Tronics 
  • Tokyu Fudosan (3289 JP): 1Q operating profit down 19% to ¥9.36bn


Analyst Ratings: 

  • Independence Group (IGO AU) cut to underperform at Credit Suisse 
  • Fortescue (FMG AU) rated new sector perform at RBC Capital 


  • Spark NZ (SPK NZ) appoints David Chalmers as CFO 
  • Navitas (NVT AU) Full-year earnings 
  •  Sven West Media (SWM AU) Full-year earnings 

Source: CIMB / Bloomberg



AUDUSD found good selling interest at 0.7600 with the market pricing in more cuts for the RBA meeting today. Photo: iStock


– Edited by Susan McDonald

This report was compiled by the Saxo APAC Sales trading team in Singapore – the home of social trading. Follow the team on @SaxoStrats or post your comment below to engage with Saxo Bank's social trading platform. Follow us on @SaxoStrats on Twitter

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