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• The RBA Governor is a patient man.
• Aussie data leaves a lot to be desired.
• US green shoots re-emerge to provide a boost to risk appetite.

Our RBA governor is a patient man who wields considerable influence over our economy, financial markets, mortgage holders and not least the local unit. He is not one to be pressured by market noise and going into the rate decision, there had been a frenzy of sentiment regarding the likelihood of a rate hike. The probability of a rate increase went from 64% to 74% within four business days while a number of market analysts started spruiking the likelihood of a rate hike and the calls for parity were heard from optimistic analysts. Commentators only needed to discredit the market noise, review the Governor’s decision history and review the data released in the previous week to identify the softness in the current economic climate. After the rate decision, Governor Stevens noted that inflation had “moderated from the excessive pace of 2008” and that this is “likely to continue in the near term”.

Generally speaking the data locally has been one of the star attractions for developed economies over the last 18 months, however this week we did not see that outperformance continue. Building Permits (-4.7%), AiG Performance of Manufacturing Index (47.3), AiG Performance of Services Index (45.6), Retail Sales (0.3%) and ANZ Job Advertisements (0.7%) all fell by a material amount. Of key importance was of course the RBA Interest Rate decision to keep rates on hold for another month at 4.50%. As mentioned, a rate hike had been priced in and as a result, the Aussie free-fell a cent against the Greenback within 30minutes. The relief for exporters was short lived as equity markets in Tuesday’s overnight session propped up risk appetite and the AUD recovered in fine fashion to post a stellar revival of more than 2.0% over a 24 hour period. Particularly strong trade, capital expenditure levels and inflation data will be the key pieces that may force the Governor’s hand going into the next board meeting as other indicators of the economy have failed to fire over the previous four weeks.

The US economy put some strong figures together this week and to see them re-emerge is positive for the global recovery. It wasn’t a comprehensive showing of strong data but any green shoots in their economy is bullish for growth. Initial Jobless (453K) and Continuing Jobless Claims (4457) were both significantly better than the previous month, as were Personal Income (0.5%), ISM Non-Manufacturing (53.2) and Construction Spending (0.4%). Pending Home Sales beat estimates while 2nd quarter GDP (1.7%) was also higher. Even moderate GDP growth will result in the feeling of a recession in the US however the data this week provides reason for a modest increase in positive sentiment for a stronger recovery. Equity markets are clearly on edge for positive news, and yesterday’s ISM Non-manufacturing figure provoked equity bulls with the S&P 500, a key gauge for risk appetite, up 2.09%. Going forward, Friday’s Non-farm payrolls traditionally suppresses trading volumes until its release and if the abovementioned employment data is anything to go by, we may see another run of risk appetite benefit the commodity correlated and higher yielding currencies. Importantly however, if the Unemployment Rate also increases to 9.7% as predicted, the equity markets may go for a brief run while further speculation of more accommodative monetary and/or fiscal policy in the US will present even stronger conditions for the Australian dollar. Interestingly, the market has priced in another round of quantitative easing from the Fed chairman, Ben Bernanke, who can no doubt be just as patient as Governor Stevens.

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