The Australian Dollar consolidated around the 0.7160 area against the big dollar Tuesday off last week’s low of 0.7120 as the currency waited in limbo for the published release of the RBA monetary minutes from the latest cash rate announcement two weeks ago. The minutes highlighted the RBA board are unlikely to raise rates in the near term and a rate cut would be appropriate if inflation stays low and unemployment trended higher. The RBA would support the economy via a lower valued Australian Dollar. The AUD fall in value 20-30 points across the board on the release. Later in the week jobs data represents the only excitement on the calendar and should offer us further direction in the currency. We are expecting more of the same from February’s 8 year low in unemployment and RBA’s view of strong growth through 2019.
Putting aside bad news this week in the markets last Friday’s positive risk sentiment should continue deep into this week. Good Friday holiday and Easter Monday will make sure investors ease into the weekend as market volume thins out. Chinese March Trade Balance released at a huge 221 Billion after 2 Billion markets were expecting highlighting a rebound in February and a nice healthy surplus. The kiwi spiked to 0.6780 against the greenback outperforming on the Monday but eased back to 0.6750 as equities dropped a touch. CPI came in low at 0.1% after we were expecting 0.3% putting immediate pressure on the kiwi gapping it 100 points lower.
Treasury secretary Mnuchin has said trade talks between the US and China are reaching the final round of negotiating. Trade representative Robert Lighthizer would speak again this week with his Chinese counterparts to work on a confined set of remaining issues. One of the discussions is to determine if person to person meetings are necessary. Recently the Fed went from a steady flow of rate hikes in 2018 to better chances of cutting this year, when the Fed next meets on May 2nd. One can’t help think that President Trump may have had a role in this with him recently on several occasions saying he would like rates lower and to also bring back the Fed’s bond buying program. His unusual public show of central bank interest may have impacted in the Fed’s shift from neutral to dovish and thus stimulating markets. The Nasdaq index is nearly 30% higher on the year and oil prices have risen 50% to 64.20 Retail Sales prints Friday along with Building permits.
The general tone of the Euro lately has been one of optimism with price supporting a shift versus the US Dollar to 1.1300 Tuesday. The problem is that the ECB has been growing more sheepish towards policy and how to boost growth. With the global economy slowing, the ECB is pointing towards Germany and several other EU parties to boost stimulus. The IMF recently mentioned Germany as a country which could provide fiscal stimulus. IMF’s Legarde said countries with a budget surplus should make use of it and participate in economic development and growth as not enough was currently being done. A couple of comments which came from the IMF meeting from Draghi were- global recovery in 2020 is subject to considerable risk and inflation expectations have been declining. Manufacturing data in France and Germany publish Thursday night.
UK Unemployment released benign last night with the rate staying unchanged at 3.9%. The Brexit roller coaster has been parked up for a few days after an extension to 31 October was negotiated. Talks between parties have not produced a result. This brings economic data back into the picture with UK CPI y/y which is expected to print around 2.0% and UK Retail Sales m/m Thursday. With February figures up 0.4% after -0.4% was expected after with strong growth in non-store retailing and fuel, the March number is expected to be light. The Pound has been trading sideways over the past few days, against the greenback it has been stable around the 1.3100 area. A push in either direction will more than likely be driven by Brexit headlines with more cross-party negotiations to take place.
Japan’s governor Kuroda hit the wires Tuesday saying he would ease rates further if the momentum towards 2.0% becomes unachievable. He insists the bank can and will if necessary, ease further from its current policy. Trade talks have begun between the US and Japan this week, with President Trump making it clear he was unhappy with Japan’s 69 Billion trade surplus with USA and is looking for an agreement to fix it. Japanese Minister Motegi said he had had a “frank and good exchange” with US Trade representative Lighthizer, will meet again next week. Japanese Trade Balance is due to publish today and is expected to reflect -0.3 Trillion down on the March figure of 0.12 Trillion.
The Canadian Dollar crossed have traded in both directions over the past few days. With Crude Oil rallying to 64.60 Friday, solid Canadian growth data and the dovish shift to Federal Reserve policy. On the other hand, the Loonie has been restricted by favourable flows in the US- China trade policy. This week promises to be no different with CPI m/m Thursday and Retail Sales m/m Friday. If we look back at how the CAD has performed against the US Dollar, it has remained in the range between 1.3300 and 1.3400 for three weeks now. The OPEC 6 monthly meeting in Vienna is Wednesday when they are unlikely to decide on their output policy and sanctions on both Venezuela and Iran until the June meeting. Until then an extension of the agreement will be granted.
Major Announcements last week:
• ECB leave the overnight rate unchanged
• US CPI m/m prints at 0.4% against 0.3% expected boosting the dollar
• US- China trade talks continue with an end in sight
• Chinese Trade Balance comes in at a whopping 221 Billion after 2 Billion was forecast
• Crude Oil hits a yearly high of 64.60
• NZ quarterly CPI prints lower at 0.1% from 0.3% dropping the kiwi 1 cent across the board