Fundamental Morning Wrap: RBA holds rates as BoE considers cutting

This morning´s institutional research has been thin on the ground, most probably due to the segmented nature of this week, with different central banks all reporting at different junctures. Last night saw the RBA meet and hold rates again, while analysts recommend staying short EUR ahead of the ECB meet and to be prepared for a rate cut from the BoE.

AUD

Andrew Salter of ANZ note that last nights Q4 BoP data confirm foreign direct investment (FDI) remains the only funding source for Australia’s current account deficit. He adds that in terms of the persistence of these inflows, this is the ninth positive net FDI inflow, an outcome that has not been matched since 1991 and writes, “We are positioned for a strong AUD via AUD/NZD.” Meanwhile Lee Hardman of BTMU meanwhile notes that AUD strengthened overnight following the RBA's decision to hold rates as Retail Sales improved. Karen Jones of Commerzbank notes that the decision has seen AUD/USD collapse to 7 month lows. Danske Bank analysts reiterate that the RBA held rates as expected, adding that the bank looks to be in wait and see mode for now, with Governor Stevens reiterating that the inflation outlook allows to ease monetary further if necessary.

GBP

ING economist James Knightley suspects that despite the rise in UK PMI, further QE will most probably follow, especially with the low hurdle following the previous MPC vote. RBS economist Ross Walker notes that the odds of an increase in the asset purchase facility have been increased by weak manufacturing PMI and BoE policymaker comments However, he adds that the odds have too been exaggerated.

EUR

RBS strategist Greg Gibbs recommends staying short EUR into the ECB meeting, adding that overall he is slightly bemused by the ECB´s policy approach, citing a damaging separation between financial world interpretations and real world realities being part of the problem.