Australian Dollar Sinks 1% against U.S. Counterpart

April 24, 2019

Australian dollar weakness, evidence of gloomier business conditions in Germany, and a review of Canadian monetary policy highlight today’s market and economic developments.

Softer-than-expected¬† consumer price inflation depressed Australia’s currency by spurring speculation that the Reserve Bank of Australia might cut its 1.5% Official Cash Rate further. Consumer prices were flat on quarter in 1Q, resulting in a half-percentage point decline of on-year inflation to a ten-quarter low of 1.3%. Underlying core inflation also slowed. Not everyone is convinced that the central bank will ease, however. Labor market data have firmed, and Australia faces parliamentary elections on May 18.

The IFO Economic Institute’s monthly measure of the German business climate slipped 0.5 index points to a 2-month low of 99.2 in April.¬† Current conditions fell 0.6 points to 103.3 and were 3.9 points lower than last August. Business expectations also weakened, dropping 0.4 points to a 2-month low of 95.2, which compares to 101.1 seen last August. There was further deterioration in manufacturing, trade, and services, but construction improved. Summing up, IFO officials observed that some gentle optimism seen in March had evaporated.

The Bank of Canada will announced its interest rate decision at 10:00 EDT (14:00 GMT). A change is not expected in the 1.75% overnight rate target, which has been at that level since last October. That had been the third increase of 2018 — all three by 25 basis points. The first two were engineered in January and July. The Bank of Canada will publish its quarterly Monetary Policy Report with updated forecasts, and a press conference by Governor Poloz has been scheduled.

Aside from the aforementioned dollar increase against Australia’s currency overnight, the greenback also climbed 0.5% versus the kiwi, 0.2% relative to the peso, and 0.1% vis-a-vis the euro and loonie, but the U.S. dollar also dipped 0.2% against the Swiss franc and 0.1% versus the yuan. The dollar is unchanged relative to the yen and sterling.

Ten-year sovereign debt yields fell so far today by four basis points in Germany, Spain and the United Kingdom and 3 bps in France, Switzerland, the Netherlands, and United States. The Japanese JGB yield is a basis point more negative at -0.05%.

The price of West Texas Intermediate oil slid 0.5% to $65.99 per barrel, while gold at $1274 per ounce is little changed.

Share price movements overnight were mixed, with drops of 0.9% in South Korea, 0.5% in Italy, 0.4% in the U.K., Spain and Hong Kong, 0.3% in Japan, and 0.2% in Indonesia but rises of 1.0% in Australia, 1.3% in India, 0.8% in New Zealand, 0.7% in Germany, and 0.4% in Switzerland.

In other economic news today,

Japan’s all industry index, a monthly supply-side approximation of GDP, slipped 0.2% in February following no change in January and drops of 0.1% in December and 0.3% in November. On-year growth in the latest all industry report was just 0.4%.

Japan’s February index of leading economic indicators was revised lower by 0.3 points from the preliminary estimate to a 2-month high of 97.1. Corporate service price inflation printed at 1.1% in March, matching February and the first quarter results.

Public sector net borrowing in the U.K. last fiscal year contracted 41% to a 17-year low of GBP 24.7 billion. Government debt as of March, the last month of the fiscal year, equaled 83.1% of GDP.

French business sentiment according to the state statistical agency INSEE remained stable in April with a reading of 105. Manufacturing confidence weakened but services and retail held steady.

The Swiss ZEW expectations index jumped strongly to a 9-month high in April but at -7.7 was still lower than zero. The last positive reading occurred last July (+8).

Czech business sentiment improved slightly in April, but consumer confidence in that economy dropped more sharply and to its weakest level since July 2016.

Malaysian CPI flipped back into positive territory last month but remained meager at just 0.2%, a 3-month high.

Finnish PPI inflation slowed 0.7 percentage points to a 13-month low of 2.3% in March.

Unemployment fell last month in both Finland and Poland to 7.0% and 5.9%, respectively.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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