Aussie Recovers After RBA Cut, Less Dovish Statement

Australian dollar recovers broadly after RBA cut rates by another 25bps as widely expected to 2.50% today. The statement was a bit less dovish then the prior one and was more neutral. RBA dropped the phrase that inflation outlook provided scope for further easing. Instead, the central bank noted that it will "continue to assess the outlook and adjust policy as needed". Regarding the economy, RBA noted that growth was a bit below trend over the past year. Inflation is expected to remain consistent with medium term target over the next one to two years. It expected recent rate cuts to have further effects over time. Meanwhile, the statement also noted while AUD has depreciated by around 15% since early April, further depreciation is possible. Overall, the statement didn't suggest further easing and the decision would be data dependent in near term.

Also released from Australian, house price index rose 2.4% qoq in Q2, the highest number since 1Q2010. Also, that's much stronger than expectation of 1.0% qoq. Q1's figure was also revised up from 0.1% qoq to 0.8% qoq. Trade surplus came in narrower than expected at AUD 602m in June.

In US, Dallas Fed Fisher said that Fed should start tapering the asset purchase in September "unless we see some disturbing data". And, with unemployment rate now down to 7.4%, "the committee is now closer to execution mode". Fisher noted that Fed now owns a "significant slice" of treasuries and MBS, which is around 20% and 25% respectively and it's "something of a Gordian Knot". And he said when time comes Fed must "carefully remove the program's pole pin and gingerly unwind it so as not to prompt market havoc."

Looking ahead, US industrial and manufacturing production will be released in European session. Italy GDP will be a focus and is expected to contract -0.4% qoq in Q2. Canada and US will release trade balance.