Reserve Bank of Australia slashes rates further to counter dismal inflation
Last week, Australia’s rate of annual inflation fell to its lowest levels in almost 20 years. This week, Australia’s interest rates fell to their lowest levels in history. The 25bps cut from the Reserve Bank of Australia was not widely expected among economists, and this morning’s currency markets reflect that. The Aussie Dollar has fallen against all other major currencies, bringing the AUD’s losses since last week’s CPI reading close to 3%. The RBA placed the blame solely on the country’s dangerous march towards disinflation, but looking at a chart for AUD/USD since the beginning of the year tells a different story. From 2016’s lows to current trading levels, the Aussie has rallied roughly 10% against the USD, moving in tandem with the commodity price recovery this year and denting the margins of Australia’s dominant exporting sector – something the Australian central bank surely had in mind when cutting interest rates this morning.
China’s latest manufacturing PMI does little to reassure global markets
China’s Caixin manufacturing PMI released this morning (a survey that focuses on the smaller, privately owned businesses in China) fell to 49.4, indicating contraction across April. The most curious aspect of the release is the extent to which this has underperformed its sister release that focuses on larger state-owned enterprises, potentially indicating that recent policy measures from China to stoke industrial activity are yet to trickle down to SMEs and are so far only benefiting larger firms. As a result of the poor data, the Japanese Yen has strengthened further, rising to the strongest level against the US Dollar since October of 2014.
Plenty of data this week, culminating in US Nonfarm Payrolls on Friday
For Sterling, PMI data due today, tomorrow and Thursday will take the lead, as markets will be looking into the finer details of the release to gauge the effect on business and consumer confidence arising from the continued Brexit debates. Recent polling still shows the race as too close to call and one wonders whether we’ll see either side take a decisive lead in polling before June 23rd, despite bookies still favouring remain over leave. US Nonfarm Payrolls on Friday is the most important release of the week. Expected at 200K, the US Dollar will be looking for a stronger figure in order to justify any sustained rally from current levels – the US Dollar is currently sitting at its weakest level against the EUR since mid-2015.
Have a great day.