The USD is in the Hands of Trump, with Iran and China’s Trade Surplus in Focus

Earlier in the Day:

Economic data released through the Asian session this morning was on the heavier side and including March household spending figures out of Japan, Australia’s March retail sales numbers, April trade figures out of China and 2^nd quarter inflation expectation numbers out of New Zealand.

For the Japanese Yen, there was more bad news for Prime Minister Abe and the BoJ, with household spending taking an unexpected turn for the worse at the end of the 1^st quarter.

Month-on-month, spending fell by 0.1%, following February’s 1.5% slide, falling short of a forecasted 0.7% rise, while Year-on-year, spending fell by 0.7%, more than reversing February’s 0.1% rise and falling short of a forecasted 1.2% increase.

The weaker than expected year-on-year spending figures were attributed to an 18.1% fall in spending on housing, a 3.2% fall in spending on culture & recreation, with spending on food falling by 0.7%.

Household incomes were down 3.8%, to leave disposable incomes down 2.7% year-on-year in March.

In spite of lower disposable incomes, spending on education and furniture & household utensils saw the largest increases, up 9.9% and 9.4% respectively, with spending on medical care (6.8%) and clothing & footwear (4.4%) providing some support.

The numbers certainly supported the BoJ’s decision to remove a target date to hit its 2% objective, all hopes now being on an uptick in spending in the 2^nd quarter following this year’s Shunto. To make matters worse, a 2^nd consecutive month of decline in household spending will weigh on GDP numbers, the Japanese economy expected to contract in the 1^st quarter, bringing an end to 8 consecutive quarters of growth, its longest stretch of growth since the 80’s.

The Japanese Yen moved from ¥109.099 to ¥109.009 against the Dollar upon release of the figures, before easing back to ¥109.08 at the time of writing, down just 0.01% for the morning.

For the Aussie Dollar, retail sales were flat in March, falling short of a forecasted 0.2% increase, following February’s 0.6% rise.

According to the ABS, a 0.7% rise in food retailing was offset by a fall in spending across all other sectors, with café, restaurants and takeaway seeing the largest fall in sales, down 0.8%, while other retailing (-0.6%), household goods retailing (-0.3%), department stores (-0.5%) and clothing, footwear and personal accessory retailing (-0.2%) also declined.

For the 1^st quarter, turnover rose by 0.2%, easing from a 4^th quarter of last year 0.8% rise.

The Aussie Dollar moved from $0.75217 to $0.74962 upon release of the figures, domestic consumption continuingly identified as a key risk to the Aussie economic outlook.

Out of China, trade data impressed with China’s April USD balance jumping from a $4.98bn deficit to a $28.78bn surplus, widening beyond a forecasted $27.50bn surplus.

• Exports rose by 12.9% year-on-year, coming in ahead of a forecasted 6.3% rise, following March’s 2.7% fall.
• Imports surged by 21.5% year-on-year, coming in ahead of a forecasted 16% rise, following March’s 14.4% rise.
• China’s trade surplus with the U.S expanded from March’s $15.43bn to $22.19bn in April.

The Aussie Dollar moved from $0.75044 to $0.75038 upon release of the figures, with the positive stats unable to bring an end to morning’s Aussie Dollar reversal, with the widening in the trade surplus with the U.S likely to get a negative reaction from the U.S administration, in spite of supporting a positive outlook for growth through the 2^nd quarter. At the time of writing, the Aussie Dollar was down 0.27% to $0.7497.

For the Kiwi Dollar, inflation expectations softened, with the RBNZ’s survey showing firms expect prices to rise by 1.8% over the coming year, down from 1.86% that had been predicted in the 1^st quarter, with firms expecting inflation for 2-years out to rise by 2.01%, down from March’s 2.11%.

The Kiwi Dollar moved from $0.70203 to $0.70191 upon release of the figures, which come ahead of the RBNZ’s monetary policy decision on Thursday, before easing to $0.7011 at the time of writing, down 0.09% for the session.

In the equity markets, the CSI300 and Hang Seng led the way through the early part of the Asian session, with gains of 1.29% and 1.18% respectively, while the Nikkei and ASX200 were up 0.36% and 0.24% respectively at the time of writing. The equity markets were on the move in response to gains in the U.S on Monday, China’s trade figures doing no harm to risk sentiment through the session, while the markets await Trump’s decision on Iran

The Day Ahead:

For the EUR, it’s a busy day ahead, with key stats scheduled for release this morning including March industrial production and trade figures out of Germany, together with the EU’s economic forecasts.

Following yet another set of disappointing numbers out of Germany on Monday, with factory orders taking an unexpected fall, weak numbers this morning will raise further concerns over the economic outlook, which has certainly softened going into the 2^nd quarter. Whether the EU economic projections can ease some of the pain remains to be seen, but if the economic indicators and data are anything to go by, even the projections will need to be on the bearish side for the 2^nd quarter and that’s before considering the possibility of a trade war between the U.S and China.

At the time of writing, the EUR was down 0.08% to $1.1913, with $1.18 levels now on the cards, with a downward revision to February’s factory orders suggesting that Germany’s industrial production may have seen further decline in in March.

For the Pound, it’s another quiet day ahead on the data front, with key stats this morning limited to April’s Halifax price index figures that are unlikely to have a material impact on the Pound this morning.

Focus is on this week’s monetary policy meeting and, with no material stats scheduled for release until production and trade data on Thursday, there’s little to shift sentiment on policy

At the time of writing, the Pound was down 0.05% to $1.3550, with the Pound giving up gains from Monday, monetary policy divergence remaining in favour of the Dollar.

Across the Pond, it’s a quiet day on the data front, with stats limited to March’s JOLTs job openings out of the U.S, while FED Chair Powell is also scheduled to speak this morning, which will have some influence on the Dollar should there be any policy talk.

At the time of writing, the Dollar Spot Index was up 0.13% to 92.866 and, while both Powell and the jobs data can influence, Trump’s decision on whether the U.S will remain within the Iran nuclear agreement will also have impact later in the day.

Across the borders, stats out of Canada are limited to April’s housing start figures that will have a relatively muted impact on the Loonie this afternoon, with NAFTA the key focus for the markets this week.

At the time of writing, the Loonie was down 0.24% to C$1.2912 against the U.S Dollar.