Market Drivers for May 6, 2013
Australian data disappoints raising specter of rate cut
EZ services PMI improve supporting EUR/USD
Europe -0.21% Nikkei closed
Oil $96/bbl
Gold $1473/oz

Europe and Asia:
AUD Inflation gauge 0.3% vs. 0.2%
AUD Retail Sales -0.4% vs. 0.2%
AUD Job Advertisement -1.3% vs. -0.5%
EUR Services PMI 47 vs. 46.3
EUR Retail Sales -0.1% vs. -0.1%

North America:
CAD Ivey PMI 10:00

Its been a predictably quiet start of the week in the currency market today with both Tokyo and London off on holidays creating thin trading conditions so far. The biggest of loser the night was Aussie after a series of disappointing data points from both Australia and China raised the spectre of a possible rate cut at tomorrow’s RBA meeting.

The Australian retails sales contracted in March printing at -0.4% versus 0.2% eyed. The report showed spending on clothing, footwear and personal accessories fell 4.2 percent, and consumers spent 1.5 percent less on household goods. On an inflation adjusted basis Retail sales increases by 2.2% versus 1.7% forecast for the three months through March, but the number was nevertheless a disappointment as it showed that demand is clearly slowing.

The slowdown in economic activity was also reflected in the ANZ job advertisements figures which dropped -1.3% from -0.5% the month prior – their second consecutive negative print this year. Finally China’s services PMI badly missed its mark printing at 51.1 versus 54.3 in March.

The overall news from Down Under set investors in a foul mood as the market now anticipates a 55% chance of an RBA rate cut at tomorrow’s policy meeting. Australian policymakers have been clearly frustrated with the strength of the Aussie which they feel undermines export competitiveness weighs on growth. A spokeswoman for Treasurer Wayne Swan said in an e-mailed statement, “There’s no doubt that the persistently high dollar continues to have an acute and widespread impact on prices and profitability across the board, which has been one of the key drivers behind the recent hit to government revenues.”

The Aussie remained heavy all night long sinking to a low of 1.0245 in mid-morning European trade. The pair may test the recent lows of 1.0225 as the day progresses, but if the RBA does cut rates and worse yet suggests that it may ease policy further in the foreseeable future, the pair could quickly tumble to test support at parity as the recently laid carry trades are quickly unwound.

Meanwhile the mood was slightly better in Europe where the EZ Service PMIs showed a modicum of improvement. EZ PMI printed at 47 versus 46.3 – still well below the 50 boom/bust line but tad better than forecast. The news suggests that the beleaguered EZ economy may be in the process of bottoming out as demand finally stabilizes.

With US eco calendar empty today trading in North American session may be subdued, although some positive follow through from Friday’s NFP report could buoy risk flows as the day proceeds. USD/JPY has traded well in the overnight session inching it way towards the 99.50 level and if it pops back above that barrier the focus will turn once again on the 100 mark. There is very little US economic data this week, but if risk flow remain positive the pair could make another run at that key psychological level.

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