Trade Talks Set to Go Ahead – The Dollar Sees Red Early

Earlier in the Day:

It was a relatively busy economic calendar through the Asian session. Key stats released during the Asian session included March retail sales and trade data out of Australia and 2^nd quarter inflation figures out of New Zealand.

Later in the session, the RBA also released its monetary policy decision and rate statement.

Out of Australia,

Sales

Retail sales rose by 0.3% in March, which was better than a forecasted 0.2% increase. Retail sales rose by 0.9% in February.

According to the figures released by the ABS,

• Cafes, restaurants and takeaway food service (1.4%) and food retailing (0.4%) led the way.
• There were also increases in sales of clothing, footwear and personal accessory (1.2%) and household goods (0.2%).
• Department store sales (-1.5%) and other retailing (-0.4%) partially offset the increases.

Trade

Australia’s trade surplus narrowed from A$5.140bn to A$4.949bn in March. Forecasts were for the surplus to narrow to A$4.490bn.

According to figures released by the ABS,

Goods and services credits fell by A$703m (2%) to A$39,340m.

• The exports of non-monetary gold fell by A$626m (31%) and non-rural goods by A$189m (1%).
• Exports of rural goods rose by A$129m (3%) and exports of goods under merchanting by A$1m (10%).
• Service credit fell by A$18m

Goods and services debits fell by A$512m (1%) to A$34,391m.

• Imports of capital goods fell by A$344m (5%) and consumption goods by A$294m (3%).
• The imports of intermediate and other merchandise goods rose by A$197m (2%) and non-monetary gold by A$20m (5%).
• Service debits fell by A$90m (1%).

The Aussie Dollar moved from $0.69925 to $0.70025 upon release of the figures, which preceded the RBA rate statement release.

Monetary Policy

The RBA left interest rates unchanged at 1.5% this morning, which was in line with market expectations. While the RBA held rates steady, the rate statement provided the Aussie Dollar with support early on.

Salient points from the rate statement were as follows:

• Labour market conditions remain strong. While there has been a significant increase in employment, the vacancy rate remains high, supported by reports of a shortage of skills in certain areas.
• Strong labor market conditions have led to a pickup in wage growth, with further wage growth anticipated.
• Housing market conditions remain soft and rent inflation remains low. Demand for credit by investors in the sector has also slowed noticeably.
• Inflation for the March quarter was noticeably lower than expected, suggesting subdued inflationary pressures across much of the economy.
• Inflation is expected to pick up gradually. Underlying inflation is forecasted to be 1.75% for this year and 2% for next.
• The RBA will be monitoring labor market conditions closely at its upcoming meetings, with further improvement needed to address spare capacity in the economy.

The Aussie Dollar moved from $0.69985 to $0.70457 upon release of the rate statement. At the time of writing, the Aussie Dollar was up 0.79% to $0.7045, supported by the lack of chatter on rate cuts.

For the Kiwi Dollar,

Quarterly inflation expectations for 2-years out came in at 2.01% in the 2^nd quarter. Inflation expectations in the 1^st quarter had stood at 2.02% back in mid-February. According to the RBNZ’s survey of expectations,

• Inflation expectations for 1-year out rose from 1.82% in the 1^st quarter to 1.97% in the 2^nd

The Kiwi Dollar moved from $0.66081 to $0.66071 upon release of the figures. At the time of writing, the Kiwi Dollar was up 0.15% to $0.6624.

Elsewhere,

At the time of writing, the Japanese Yen was up 0.07% to ¥110.68 against the U.S Dollar, with market risk sentiment providing direction early on.

The Day Ahead:

For the EUR,

It’s a relatively quiet day on the economic calendar. Key stats scheduled for release include German factory orders for March and EU economic forecasts.

Factory order numbers out of Germany have been dire of late, supporting the recent trend in manufacturing PMI numbers.

We can expect the EUR to be particularly sensitive to any unexpected drop in orders. Orders have fallen over the last 4-consecutive months…

Outside the numbers, market risk sentiment will play a hand through the day. With trade talks set to resume tomorrow, any updates ahead of talks will influence. The big question will be whether trade talks will go ahead.

At the time of writing, the EUR was up 0.12% at $1.1212.

For the Pound,

Economic data due out of the UK is limited to April house price figures. The Pound will likely brush aside the figures, with the focus likely to be on Parliament through the day.

At the time of writing, the Pound was up 0.21% to $1.3125.

Across the Pond,

It’s another quiet day ahead on the economic calendar. March JOLTs job openings due out later today will unlikely have a material impact on the Dollar. Following the latest nonfarm payroll figures released on Friday, the Dollar will be resilient to the numbers, barring a material deviation from forecasts.

Outside of the numbers, market risk appetite will be key through the day. On the eve of a resumption of U.S – China trade talks, any chatter on trade will influence the broader markets.

At the time of writing, the Dollar Spot Index was down 0.10% to 97.413.

For the Loonie,

Economic data out of Canada is limited to Ivey PMI numbers for April. A lack of stats will leave the Loonie sensitive to this afternoon’s figures. Anything worse than a forecasted 51.1 and expect the Loonie to come under pressure.

The Loonie was up 0.25% at C$1.3415, against the U.S Dollar, at the time of writing.