Dollar Broadly Firmer

May 4, 2021

In overnight trading, the dollar strengthened 1.0% against the kiwi and Turkish lira, 0.6% relative to the Australian dollar, 0.4% versus the euro, Swiss franc, and its weighted index, and 0.3% vis-a-vis the yen, loonie and sterling.

Share prices in the Pacific Rim advanced 1.3% in New Zealand, 0.7% in Hong Kong, and 0.6% in South Korea and Australia but fell by 1.7% in Taiwan. Markets remained shut in Japan for Greenery Day and China for the continuing Labor Day holiday. So far in Europe, equity markets have climbed today by 1.2% in Spain, 0.8% in the U.K. and France and 0.3% in Italy, but the German Dax has dipped 0.1%.

One boost for the dollar has been a two-basis point rise in the ten-year U.S. Treasury yield, whereas sovereign debt yields in Japan, the U.K. and Germany remain unchanged. Strong corporate earnings have also helped the dollar.

Among commodity prices, WTI oil advanced 1.8%, but gold fell by 0.5% overnight.

The results of two central bank monetary policy reviews were announced. The Reserve Bank of Australia left its Official Cash Rate steady once again at 0.10%, its level since a 15-basis point cut in November capped 65 basis points of reduction done in 2020.  Australian officials have become more optimistic about growth prospects due to recent trends in housing, business investment, and employment. However, they still do not expect inflation to climb in a sustainable way back into its targeted 2-3% range until late 2023 because it will take that long before sufficient wage pressure emerges. Regarding quantitative stimulus, officials said this:

At its July meeting, the Board will consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity, the November 2024 bond. The Board is not considering a change to the target of 10 basis points. At the July meeting, the Board will also consider future bond purchases following the completion of the second $100 billion of purchases under the government bond purchase program in September.

The Central Bank of Armenia‘s refinancing rate has been raised for the second time this year. Following up on a 25-basis point increase in February, the rate was lifted by 50 basis points to 6.0%. The tightenings are a response to accelerating inflation, which at 5.8% is at a six-year high and well above the central bank target of 4.0%.

Today’s menu of economic data releases around the world includes several purchasing manager surveys. Similar to yesterday’s findings, the surveys highlight multi-year highs of inflationary pressure caused in large part by supply-chain disruptions and other capacity constraints.

The non-oil Saudi Arabian and UAE PMI readings rose to 3- and 21-month highs of 55.2 and 52.7.

Within the euro area, whose collective manufacturing PMI score of 62.9 in April represents the fastest expansion rate since at least mid-1997, the factory PMIs of Greece and Ireland advanced to respective 14-month and 23-year highs of 54.4 and 60.3.

The British manufacturing PMI was 60.9, 0.2 points above its preliminary April score and the highest since mid-1994. Output price inflation rose to a record high.

Vietnam’s manufacturing PMI rose 1.1 points to a 33-month high of 54.7.

Poland’s PMI settled back 0.6 points below March’s 38-month high to a still robust 53.7 score, but Russia’s manufacturing purchasing managers index dropped to a 4-month low of only 50.4, signalling that the factory sector came close to stalling last month.

In other overseas data, Australia reported its smallest trade surplus (A$ 5.57 billion) in four months for March but a first-quarter surplus (A$ 22.7 billion) that was 29% wider than a year earlier. A separate Australian release today revealed a 3.3% rise in home loans, which were also 55.6% greater than their pandemic-depressed year-earlier level.

South Korean CPI inflation accelerated 0.8 percentage points to a 44-month high of 2.3% in April.

Hong Kong retail sales dropped strongly on month for a second straight month but were still 19.8% greater in March than a year earlier.

British mortgage approvals in March fell short of expectations but were associated with a record monthly high in mortgage borrowing.

Swiss consumer confidence improved to a five-quarter high in 2Q 2021.

Today’s menu of U.S. releases features factory orders and the trade deficit but also includes the IBD/TIPP optimism index and the New York regional PMI survey.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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