Aussie flies as RBA cuts, removes easing bias

FXStreet (Bali) - Today's Asian action in the Aussie offered one huge counter-intuitive move, as the RBA decided to cut the rate by 25bp to 2%, with AUD/USD initially selling off to 0.7790 prior to a major sort squeeze towards 0.7910 and beyond.

The RBA made reference to improved employment and household demand, which coupled with inflation considered to be on target, led to the Central Bank to remove the easing bias from the statement, suggesting that a period of neutral rhetoric in the RBA is due.

According to Nomura, while the RBA cut 25bp to 2% as widely expected, and retained concern about AUD "further depreciation seems both likely and necessary", the Bank notes that the critical part is that "the RBA removed the prior easing bias statement (which was that "further easing of MP may be appropriate over the period ahead")."

Key headlines

Some brokerage in China raise margin requirement - China Securities

Australian AiG Performance of Services Index eases in April

Australian trade deficits deteriorates, exports down 2%

Heading into Europe

In Europe, the Spanish unemployment figures, together with the EU economic forecasts and the UK Construction PMI, will be the main data releases.

However, these indicators will only serve as a short-lived distraction from the real market focus, that is, the UK elections on May 7 and the constant talk of a possible Grexit should the country not agree to further funding soon.

According to Barclays Economist Francois Cabau, a Greece Referendum is a real threat and might lead to capital controls.

Cabau notes that “following Greek Prime Minister Alexis Tsipras’ comments last week, we believe there are material chances of a referendum as Greek authorities will eventually have to agree to more EU-IMF demands to receive official financing.”

“A referendum is likely to add to the uncertainty and might lead to the imposition of capital controls to prevent an acceleration in deposit outflows. The latest polls nonetheless suggest a positive outcome of a potential referendum (ie, a majority of Greeks are in favour of further EU-IMF financial support and EA membership). However, a referendum would likely generate some volatility for other European markets”, Cabau adds.

As per the UK election, polls remains very tight, suggesting that a hung parliament is a real possibility. In a recent article published via Reuters, Mark Peacock, economics, economic policy and markets editor for the EMEA region at Reuters, notes: “The opinion polls suggest the ruling Conservatives may be edging ahead of the opposition Labour party but still neither are likely to secure a parliamentary majority on their own. The Scottish Nationalists are poised to trounce Labour north of the border while anti-EU UKIP, despite a troubled campaign, will take a lot of Conservative votes in England.”