A dovish RBA and weak economic data out of China weighed through the Asian session, with the day ahead a busy one on the economic calendar, bringing the Pound, the EUR and the Dollar into focus.
Earlier in the Day:
Economic data released through the Asian session was on the heavier side this morning. Key stats included China’s 1st quarter GDP, retail sales, industrial production and fixed asset investment figures for March together with finalized February industrial production figures out of Japan, with the RBA meeting minutes also released through the session.
For the Aussie Dollar, the RBA minutes delivered few surprises yet again, with little sign of a shift in monetary policy in the near-term. Key points from the minutes included:
- High debt levels in China and the significant share of financial market activity in unregulated sectors continued to pose important risks to the Chinese economy.
- Recent domestic data has been consistent with the RBA’s forecast for gradual uptick in growth, with outlook for non-mining business investment growth remaining positive, supported by strong demand conditions, spill-over from public infrastructure work and the pipeline of non-residential building work to be completed.
- Spare capacity in the labour market to continue to gradually decline in 2018.
- Wage growth expected to rise gradually, while inflation expected to remain low for some time, weighed by low growth in labour costs coupled with strong competition in the retail sector.
- Consumption growth uncertainty persists due to possible effect of high household debt.
- Aussie Dollar appreciation would lead to slower economic growth and inflation than forecasted.
- Based on current conditions, the next move would likely be up, though there was not a strong case for a near-term adjustment in monetary policy.
The Aussie Dollar slid from $0.7783 to $0.77769 upon release of the minutes, which came just ahead of the stats out of China, the Aussie Dollar seeing gains ahead of the release reversed.
Unsurprisingly, China’s 4th quarter GDP figures and fixed asset investment numbers garnered the most attention this morning.
The stats were skewed to the negative and, while retail sales jumped by 10.1% in March, with the economy growing by 6.8% year-on-year, in line with the 4th quarter and forecasts, the softer fixed asset investment and industrial production figures were aligned with the disappointing March manufacturing PMI numbers released at the start of the month.
- Quarter-on-quarter, the economy grew by 1.4%, falling short of a forecasted 1.5% and 4th quarter 1.6%.
- Industrial production grew by 6%, falling short of a forecasted 6.4% and well below February’s 7.2%.
- Fixed Asset Investment rose by 7.5%, short of a forecasted 7.7% increase and February’s 7.9% rise.
The Aussie Dollar slipped from $0.77727 to $0.77711 upon release of the figures, before pulling back to $0.7767 at the time of writing, down 0.18% for the session.
For the Japanese Yen, industrial production was flat in February, according to finalized figures, falling short of a prelim 4.1% rise following January’s 6.8% slide.
The Japanese Yen moved from ¥107.05 to ¥107.048 against the U.S Dollar upon release of the figures, with market sentiment through the morning having a greater influence through the session than the production figures, the Yen up 0.08% to ¥107.03 at the time of writing.
In the equity markets it was another mixed day, the ASX200 hot out of the gates before easing back to a 0.17% gain in the late part of the session, while the CSI300 and Hang Seng continued to see red, responding to the latest data out of China, while the Nikkei managed to reverse early losses, up 0.11% ahead of the close.
The Day Ahead:
For the EUR, stats out of the Eurozone include finalized March inflation figures out of Italy, together with April’s ZEW Economic Sentiment figures for Germany and the Eurozone. After a quiet start to the week, from a data perspective, we can expect the headline figure out of Germany to get plenty of attention, with the numbers forecasted to be a negative for the EUR this morning.
Dollar weakness has ultimately driven the EUR, which was up another 0.4% by Monday’s close, the uptick coming as a result of noise from the Oval Office and a material pickup in geo-political risk in recent weeks.
At the time of writing, the EUR was up 0.03% to $1.2384, with this morning’s stats and general market risk appetite, following this morning’s GDP numbers out of China, and the predictability of Trump’s political actions and reactions a factor for the markets to consider through the day.
For the Pound, following a quiet start to the week, this morning’s employment figures will be of influence, with the unemployment rate needing to hold steady and for wage growth to continue to pick up steam in order to support a possible move by the BoE next month.
With the Pound now at $1.43 levels, up a whopping 6.1% year-to-date to levels not seen since June 2016, Brexit and sentiment towards monetary policy will continue to be key to support the Pound at current levels, with the cloud of negativity shrouding the U.S Dollar another factor for the markets to consider.
We could see $1.44 levels sooner rather than later and, if today’s numbers impress and Trump continues to chastise other economies, with only negative news from Brussels a possible hindrance to the Pound’s rise.
At the time of writing, the Pound was up 0.03% to $1.4344, with the direction of the Dollar, today’s stats and of course any noise from Brussels on Brexit trade talks the key drivers through the day.
Across the Pond, Trump can claim yet another success, this time being the weaker Dollar, with noise from the Oval Office overshadowing some better economic data out of the U.S on Monday. Even a more hawkish FED and rising inflation has been unable to provide the needed support as the market continues to get bearish on the Greenback.
Economic data scheduled for release out of the U.S this afternoon includes March housing data and industrial production figures, while FOMC members Williams, Quarles, Harker and Bostic are scheduled to speak in a week where the Committee is out in force. Whether hawkish chatter can bring the Dollar’s decline to an end remains to be seen, but for any material upside, the Oval Office and the U.S President in particular, will need to change its approach.
At the time of writing, the Dollar Spot Index was down 0.02% to 89.404, 100 levels a distant memory, with today’s stats unlikely to be of too much support, leaving it to FOMC members to try to offset some of the negativity.
Across the border, February’s foreign security purchases and manufacturing sales figures are scheduled for release, with a forecasted upward reversal in manufacturing sales likely to provide support for the Loonie this afternoon, with Trump chatter, continued upbeat view on NAFTA talks and tomorrow’s interest rate decision, other considerations for the market.
The Bank of Canada had raised concerns over the possibility of a negative outcome to NAFTA negotiations, leaving the central bank on the back foot through much of the 1st quarter. It will likely be too early to make a move, with Trump more than capable of shifting directions at a whim, but a more hawkish statement and policy report would certainly be a minimum for the markets going into tomorrow.
At the time of writing, the Loonie was down 0.06% to $1.2575 against the Greenback, with the bounce in oil prices through the first quarter and February’s pickup in baseline inflation likely to provide some further support for a more hawkish BoC and for the Loonie in the week.