RBA Minutes Depress Australian Dollar in Otherwise Quiet Morning

June 17, 2014

The Australian dollar declined 0.4% against its U.S. counterpart.  Minutes from the central bank’s June 3 meeting contained a more sober view of economic growth prospects, satisfaction that inflation will stay in target, and the continuing assertion that Australia’s exchange rate is stronger than warranted.

The U.S. currency otherwise is is uchanged against the euro, yuan and sterling, 0.2% firmer against the kiwi and up 0.1% relative to the yen, Swiss franc and loonie.

Share prices in China, which had firmed following last week’s cut in reserve requirements, fell 1.0%.  Equities dipped 0.2% in Australia, 0.4% in Hong Kong and 0.5% in Singapore, but rose 1.3% in India, 0.5% in Indonesia, 0.4% in Taiwan and South Korea and 0.2% in Japan.  In Europe, stocks are down 0.3% in Italy but up 0.2% in Germany and 0.1% in France and Spain.  The British and Swiss markets are flat.

Ten-year sovereign debt yields in Germany, Britain and Japan are unchanged from Monday.

Gold and oil slipped by 0.7% to $1,266.70 per ounce and 0.6% to $106.32 per barrel.  The Sunni insurgency in Iraq remains a big market focus.

Germany’s ZEW Institute reported softer investor sentiment toward Germany in June, but the incremental deterioration was not as sharp as in May, suggesting some support from the ECB’s easing early this month.  In the case of Germany, business expectations printed at 29.8, lowest since December 2012 and down from 33.1 in May, 43.2 in April and 62.0 six months ago.  Current conditions improved by 5.1 points to 67.7.  Regarding the euro area, business expectations printed 3.2 points higher at 58.4, a two-month high, while the current situation printed at negative 27.7, which was 2.1 point better than in May.

Labor costs in the euro area only went up 0.9% in the year to the first quarter, down from a 2.1% advance in the previous year to 1Q13.  Wage inflation slowed to 1.5% from 2.0% in the final quarter of 2013, while non-wage labor costs posted an outright on-year drop of 0.8% versus a gain of 0.4% in the year to 4Q13 and a 1.8% increase in the year to 1Q13.

British price data also exhibited greater-than-predicted disinflation.  The CPI dipped 0.1% on month in May and decelerated to a 1.5% 12-month increase, smallest since October 2009.  Core consumer price inflation slowed from 2.0% in April to 1.6% in May, matching the 12-month increases posted in March and January   Retail price inflation dipped 0.1 percentage point to 2.4%, and the core RPIX pace fell to 2.5% from 2.6%.  Producer output prices dipped 0.1% in May and recorded a smaller 0.5% on-year advance.  Producer input prices, however, went up 0.9% on month and by 5.0% on year.  Finally, the ONS house price index, formerly known as the DCLG index, climbed 2.0% in May and accelerated to a 9.0% 12-month increase from 8.0% the month before.

The Swiss PPI/import price index edged 0.1% higher on month in May but fell by 0.8% from a year earlier.  Domestic producer prices were unchanged from April and 0.5% lower than in May 2013, while import prices edged up 0.1% but recorded a 1.4% year-over-year decline.

New car sales in the 25-nation European Union were 4.5% higher than a year before in May, similar to their 4.6% increase in the year to April.

The Italian trade surplus was EUR 3.505 billion in April, about 10% smaller than in March.  The Dutch current account widened 39% on quarter to EUR 20.7 billion in 1Q14.

Chinese foreign direct investment unexpectedly plunged 6.7% between April 2013 and April 2014.  This caused the year-to-date comparison to be cut almost in half to 2.8% in January-April from 5.0% in 1Q14.

Australian motor vehicle sales increased 0.3% on month but fell by 2.0% on year in May after a 1.9% on-year decline in April.

Investors await today’s releases of U.S. consumer prices, housing starts, building permits and weekly chain store sales.  The FOMC begins a 2-day meeting that will culminate with the reporting of new forecasts and a Janet Yellen press conference tomorrow.  Former Fed Chairman Bernanke also speaks tomorrow.  Japanese trade figures arrive tonight.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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