Corona Virus
Stay Safe, FollowGuidance
Fetching Location Data…
Bob Mason
Arms trade business concept.

The Stats

Economic data released through the Asian session this morning delivered some unexpected results.

New Zealand saw softer inflation in the 1st quarter, in spite of a new sales tax on cigarette and tobacco. Economic data out of China was not quite as bad as many had anticipated, in spite of the trade war…


Out of Japan, while the trade surplus widened in March, the trade balance fell into a deficit for the fiscal year 2018. The deficit was a first in 3-years…

Out of China, the economy grew by 6.4%, year-on-year, in the 1st quarter, which was at the same pace as in the 4th quarter. Quarter-on-quarter, however, the economy slowed to 1.4% from a previous quarter of 1.5%.

In spite of the mixed numbers, a jump in industrial production in March and a surge in retail sales softened the blow.

Elsewhere in the week, the RBA intimated a need to maintain a low-interest rate environment in the latest policy meeting minutes. The minutes were on the more dovish side even with the RBA holding back from talking of a possible rate cut.

For the Loonie and the EUR, there’s certainly been no reason for the pair to get too excited. Any gains have been reversed of late. Both the BoC and the ECB have maintained a particularly dovish stance. The Bank of Canada was somewhat late in shifting away from a hawkish stance but ultimately delivered.

With the Bank of England joining Britain and Brexit in the State of Limbo, it was left to the FED to fly the flag for the Hawks.

It’s hard to say where the pressure came to force the FED to hit pause. Either way, the influence of the Oval Office prevailed. Trump’s trade war with China saw to that…

Monetary Policy Divergence or Global Conformance

While this morning’s stats out of China will have eased any immediate concerns over Australian trade terms, the stats are unlikely to have an impact on the RBA.

High household debt, tepid wage growth, uncertainty over consumption, softer inflation numbers and falling house prices are all reasons why the RBA is going to need to be ready to hit the cut button.

The Aussie Dollar may have moved back through to $0.72 levels ahead of the European session, but a slide back to $0.70 levels would not be unsurprising should there be no shift in the RBA’s key areas of focus.

If this morning’s inflation figures out of New Zealand do incentivize the RBNZ to cut rates next month, the RBA may not be far behind.

The Game of Dominos

Moving from East to West, the RBA would likely follow an RBNZ rate cut. Next up would be the ECB. Cutting rates may not be an option, but tiered deposit rates for banks would certainly be a viable option. To be fair, however, if private sector PMI numbers don’t improve in April, it’s going to need more than tiered deposits.

The Pound is left out of the equation for now. Brexit is already having a longer-lasting effect on the Pound than a 25 basis point rate cut. With inflation sitting well below its post EU Referendum peak, the BoE will likely stand pat near-term.

Economic data has been good enough to support this status quo.

That leaves the Greenback… Since the decision in March to hit pause, risk sentiment has had a material impact on the Dollar.

The Risk on – Dollar off relationship will continue until there is an untimely return of the hawk. It’s unlikely to be Kashkari, but there are a number that could surprise in the next month or two. The danger of betting against the Dollar is the speed at which the doves turn…

Economic data out of the U.S hasn’t been great, but there’s a high bar set by the markets. Labour market conditions remain strong and, when considering consumption contribution to the GDP numbers, this is key.

The bad news for Trump would be the rising prospects of a rate hike. We’ve yet to see any particularly alarming stats out of the U.S, to support a rate cut.

All in all, the Greenback continues to move on the assumption of a continued pause through the year. In spite of this, divergence remains clearly in favor of the Dollar.

So, in summary…

Earnings results will influence the equity markets, consumer confidence and ultimately consumption.

Decent earnings would strengthen Trump’s case for a 2nd term for Trump. That said, the FED may also end up having to give rates a nudge upwards. Not a bad thing though, when considering the lack of a buffer at present…

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Trade With A Regulated Broker

  • Your capital is at risk
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.