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Aussie Dips Following Soft Trade Data
AUD/USD is trading heavily, and also posted two-day lows against the yen, Canadian and New Zealand dollars, after hitting a 1-month low at 0.7600 on Tuesday. This underperformance follows disappointing Australian data, with April retail sales coming in flat, contrary to expectations for a 0.2% gain, while trade data also showed a sharp widening in the deficit in April, to a worst-on-record $3.9 billion.
The deficit was well off the survey median forecast of $2.25 billion and the $1.2 billion recorded in March. Coal and metal ores were the biggest drag on exports. Coal exports fell 22% while metal ores and minerals dominated by iron, Australia’s biggest resource export fell 13%. Much of the weakness in coal exports was due to a slump in volumes, caused by weather-related port closures, which goes some way to explain the big expectations miss while setting the scene for a likely rebound in the next month. The data still, however, hits home the impact that the erosion in Australia’s terms of trade is having, which is the fundamental basis for the RBA’s desire for a weaker currency.
Wednesday US Fed’s Beige Book reiterated the US economy continued to expand, with most Districts characterizing the pace as moderate to modest pace. Maybe not surprisingly given its exposure to the energy sector recession, the Dallas Fed reported slightly slower growth. Most Districts also noted an uptick in consumer spending with outlooks on the future rather positive. Manufacturing activity held steady or increased except in KC where it fell markedly and in Dallas, while demand for nonmanufacturing services increased.
Credit quality and delinquency rates were steady or improved. Oil and gas activity continued to decline in most areas, while the drought in the West and the bird flu outbreak were mentioned as headwinds too. Employment was up slightly, as were wages. Prices were stable or ticked up, though some manufacturers reported lower input prices. There isn’t a robustness evident in the tone of the report to suggest policymakers are on the verge of hiking rates.
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