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AU Data

• Monday 10.30 TD Securities/Melbourne Institute Inflation Gauge previous 0.3% m/m
• Monday 11.30 Private Sector Credit previous 0.4% m/m
• Tuesday 09.30 Manufacturing Purchasing Managers Index previous 51.2
• Tuesday 14.30 Interest Rate Decision current 7.25%
• Tuesday 14.30 RBA Rate Statement
• Tuesday 16.30 Index of Commodity Prices previous 28.6% y/yWednesday 11.30 Building Approvals previous 7.8% m/m
• Wednesday 11.30 Retail Sales -0.2% m/mThursday 09.30 Services Purchasing Managers Index previous 49.7
• Thursday 11.30 Trade Balance previous -1.0b

The AUD put in a strong performance against the USD (+0.72%) and NZD (+0.76) last week as both currencies were hurt by weak economic data. Perhaps more significantly the AUD struggled against the EUR (-0.51%), CHF (-0.95%) and JPY (-0.36%) as equity markets tumbled around the world and credit crisis concerns re-emerged to hurt sentiment. Carry trades, which have been a major driver of AUD strength in last three months (AUDJPY +12.06%), took a sharp step backwards towards the latter part of the week and signs of further weakness in equities may presage further unwinding of long AUD positions. The RBA rate decision and statement on Tuesday will be the centre piece for the week but other important releases including inflation, building and retail sales data will influence trading sentiment.

 NZ Data

• Monday 08.45 Building Consents previous 82.1% m/m
• Monday 13.00 Business Confidence previous -49.7
• Thursday 13.00 ANZ Commodity Price Index previous 1.0%

A poor week for the NZD across the board as a rapidly slowing domestic economy continues to be a drag on the currency. Disappointing Current Account (-2.2b), Consumer Confidence at a 17 year low and negative GDP (-0.3% q/q) growth in Q1 2008 all putting increasing pressure on the RBNZ to cut interest rates sooner rather than later. Consensus forecasts are for interest rates to start falling by September. The NZD was sold against all major currencies over the week; the largest fall being against the CHF (-1.78%), which reflects the re-emergence of some risk aversion as equity markets fell and credit crunch worries made financial headlines. Should further unwinding of carry trades continue over the next few weeks a deeper NZD correction will be seen. This week’s diary is unlikely to provide any reversal of the general negative sentiment towards the domestic economy and it is likely that global concerns will dictate the appetite for risk and attractiveness of the still high yielding NZD.

US Data

• Monday 23.45 Chicago Purchasing Managers Index previous 49.1
• Wednesday 00.00 Institute of Supply Management Manufacturing Index previous 49.6
• Wednesday 00.00 Institute of Supply Management manufacturing Prices pervious 87.0
• Wednesday 00.00 Construction Spending previous -0.4% m/m
• Wednesday 21.30 Challenger Job Cuts previous 45.6% y/y
• Thursday 00.00 Factory Orders previous 1.1% m/m
• Thursday 01.00 Treasury Secretary Paulson Speech
• Thursday 02.00 FOMC Member Mishkin Speech
• Thursday 22.30 Nonfarm Payrolls previous -49.k
• Thursday 22.30 Unemployment Rate previous 5.5%
• Thursday 22.30 Average Hourly Earnings previous 0.3% m/m
• Thursday 22.30 Unemployment Claims previous 384k
• Friday 00.00 Institute of Supply Management Non-manufacturing Composite previous 51.7

As expected the Fed Reserve kept rates on hold at 2.0% last week, but the tone of the post decision statement disappointed the market as being less aggressive towards inflation than expected, especially when compared to the equivalent ECB pronouncements. The Fed’s remarks signalled the next move in interest rates will be up but the statement indicated they are in no rush, especially when considerable uncertainty still exists regarding the health of the economy, oil prices and continued persistent credit crunch ramifications. Consumer Spending (+0.8% m/m) data released on Friday jumped in May, as government tax stimulus ($48b) boosted household budgets. Perhaps an indication of the lack of Consumer Confidence (50.4, 16 year low) is that the saving rate hit a 13 year high. The boost to consumer spending will fuel Q2 GDP but questions remain over sustainability for the coming quarters, especially as oil ($140) and food prices erode disposable income and confidence is undermined by inflation, falling equity and house prices. Core PCE, the Feds preferred measure of inflation, only edged up 0.1% (0.2% expected) and although still outside the Feds comfort zone is certainly not reflecting increased inflation expectations of both business and consumers. Thursday’s Non-farm Payrolls and Treasury Secretary Paulson speech look to be the highlights for this week.

JPN Data

• Monday 09.15 Manufacturing Purchasing Managers Index previous 47.7
• Monday 15.00 Housing Starts previous -8.7% m/m
• Tuesday 09.50 Tankan Large Manufacturers Index previous 11
• Tuesday 09.50 Tankan Large Non-manufacturers Index previous 12
• Tuesday 11.30 Average Cash Earnings previous 0.8% y/y
• Wednesday 09.50 Monetary Base previous -0.9% y/y
• Friday 15.00 Leading Economic Index previous 92.8%

Domestic data from Japan continues to show sluggish activity as consumers are squeezed by high fuel and food prices. Consumer Inflation (+1.5%) accelerated in May to a new decade high, adding to the BOJ’s concerns about inflation hurting the economy. Inflation has been rising gradually in 2008 after zero-growth in 2007. Industrial Production (+2.9% y/y) beat forecasts but concerns remain that the economy will contract in the April-June quarter. Export markets have been the main driver for growth, especially China and other emerging markets that have been able to soften the effect of falling sales to the US. Renewed concerns over the global credit crisis added to the gloom on Friday, dragging the Japanese shares down to a two month low and reducing expectations of a BOJ rate hike in 2008.

Interest rate outlook