Inflation Data Keeps the USD front and Centre ahead of Wednesday’s FOMC Decision

Earlier in the Day:

Economic data through the Asian session this morning was on the lighter side, but certainly not lacking influence, with key stats including April’s private sector PMI figures out of China, business confidence numbers out of New Zealand and new home sales and private sector credit figures out of Australia.

For the Kiwi Dollar, According to the ANZ Business Confidence survey, confidence eased in April, with a net 23.4% of businesses being pessimistic about the year ahead, down 3 points from March, with all sectors in the red.

While the services sector was the least pessimistic, the agriculture sector was the most, while managing to see some improvement from March.

The construction sector saw the greatest deterioration, falling from 33 to 9.1, the lowest level since 2008.

In addition to confidence taking a hit, own activity also slid, with employment indicators mixed and expected profitability sliding to the lowest level since 2009.

The Kiwi Dollar moved from $0.70868 to $0.70764 upon release of the figures, with both business and consumer confidence now having softened.

For the Aussie Dollar, new home sales fell by 2% in March, following February’s 0.7% decline to make it 3 consecutive months of decline, the declines coinciding with tighter lending restrictions.

The Aussie Dollar moved from $0.75761 to $0.75723 upon release of the figures, which coincided with the release of China’s private sector PMI numbers.

Out of China, April’s manufacturing PMI eased from 51.5 to 51.4, coming in ahead of a forecasted 51.3, while the service sector PMI rose from 54.6 to 54.8.

While the manufacturing PMI numbers was marginally softer, the continued expansion in the sector amidst the current trade spat between the U.S and China and Beijing’s attempts to curb debt and address pollution issues will have been taken as a positive, the only real concern in the numbers being softer exports in April.

While new home sales slipped in March, private sector credit increased by 0.5%, coming in ahead of a forecasted 0.4% rise, following February’s 0.4% increase.

Annual credit growth continues its downward trend, with tighter credit conditions weighing on investor housing credit, while business credit picked up, supporting the rise in March.

The Aussie Dollar moved from $0.75781 to $0.75706 upon release of the figures, as focus now shifts to the RBA’s interest rate decision and release of the rate statement tomorrow, disappointing inflation figures for the 1^st quarter likely to leave the RBA in a holding pattern for the foreseeable future.

The dovish policy outlook left the Aussie Dollar down 0.25% to $0.7562 at the time of writing, the Kiwi Dollar doing somewhat better, down just 0.08% to $0.7079.

Elsewhere the Japanese Yen slipped 0.06% to ¥109.11 against the Dollar at the time of writing, easing geo-political risk and better than expected PMI numbers out of China supporting market risk appetite through the session, leading to a pullback in demand for the safe havens.

In the equity markets, the Hang Seng led the way, up 1.51%, with the ASX200 up 0.53%, China and Japan’s markets closed for the day.

 

The Day Ahead:

For the EUR, economic data scheduled for release this morning includes retail sales figures out of German, together with prelim April inflation numbers out of Germany and Italy.

An expected bounce back in German retail sales at the end of the 1^st quarter should provide the EUR with some support, though it’s going to boil down to the inflation numbers, as the market continues to look for signs of a pickup in inflationary pressure that could see policy divergence in favour of the Dollar narrow.

At the time of writing, the EUR was flat at $1.213, with market risk sentiment, today’s stats out of the Eurozone and a heavy set of stats out of the U.S later today key drivers.

For the Pound, there are no material stats scheduled for release, with focus this week being on April’s private sector PMI numbers. While 1^st quarter GDP numbers were said to have all but removed the chances of a May rate hike, April’s PMI could confuse matters should the numbers impress. The softer 1^st quarter had been attributed to adverse weather conditions through the 1^st quarter, this week’s figures will confirm or deny the view and whether pricing out a rate hike in May left the Pound oversold.

At the time of writing, the Pound was up 0.02% to $1.3784, with Brexit and outlook towards monetary policy continuing to be the two key drivers, neither having been too supportive of the Pound of late.

Across the Pond, it’s another busy economic calendar, with stats out of the U.S this afternoon including the FED’s preferred March Core PCE Price Index figures, together with personal spending and pending home sales. Focus will be on the inflation figures, with anything in line with or better than a forecasted uptick to 1.8% supporting the Dollar, personal spending also expected to impress.

First quarter growth was certainly not as bad as some had feared, paving the way for a more hawkish FED this Wednesday should March’s inflation figures impress.

The Dollar Spot Index was flat at 91.54 at the time of writing, 10-year Treasury yields sitting at 2.96% ahead of today’s open and the release of today’s figures that could see yields bounce back to 3% this afternoon.

Across the border, the Loonie is also in action this afternoon, with March’s RMPI figures scheduled for release, though the stats are unlikely to see the Loonie recover recent losses, the Bank of Canada having managed to reverse the Loonie’s gains from earlier in the month.

At the time of writing, the Loonie was down 0.13% to C$1.2845 against the Dollar, with falling crude oil prices and today’s stats out of the U.S likely to drive market sentiment through the day.