Australian CPI much weaker than expected

FX News Today

European Outlook: Most Asian stock markets are down on the day, disappointing earning results added to Yen strength weighed on Japanese markets. Oil prices are higher and the front end WTI future is comfortably above USD 44 per barrel, but investors remain cautious ahead of this week’s round of central bank decisions, which kicks off with the Fed announcement today, which will be followed by the BoJ tomorrow. Fed is unanimously expected to maintain and unchanged rate stance (there is no press conference). Hence, the focus will be on the nuances of the policy statement and we see some risk that it will be more hawkish than markets expect. In Europe, the focus is on the first release of UK. Q1 GDP data, which is expected to confirm that growth moderated somewhat at the start of the year. The UK. also has CBI reported sales data for April.

Australian CPI much weaker than expected: The headline figure for the quarter (q/q) -0.2% expected  +0.2%, previous reading  +0.4%. The yearly y/y 1.3% from previous 1.7% and expectations of 1.7%. The ‘trimmed mean’ (Core inflation) also lower at 0.2% (0.5% expected and 0.6% q/q) and 1.7% y/y expectations were for 2.0% previously 2.1%. This is a very large variance over one fifth lower than expectations.  Low inflation is effectively a tightening of interest rates so this poor number raises the expectations of the RBA having to cut rates. The RBA next meet  May 3.  AUDUSD fell over 1.7% and is currently trading at 0.7610.

ECB’s Coeure: Only sharp EUR appreciation would be concern. The Executive Board member seems to suggest that current levels are not a problem and won’t trigger further ECB action on their own. At the same time Coeure hit out at critics of the ECB’s policy, seeing that some of them miss the bigger picture. Especially Germany has been very critical of the central bank’s policies, but Coeure stressed that these critiques do not hamper the central bank’s ability to function, which implies that political pressure won’t prevent further action if the ECB sees the necessity to act.

US Weak Sentiment Signals: Revealed a weak round of March durable goods figures thanks to weak equipment data, and an expectations-led April consumer confidence drop. Yet, the April decline in the Richmond Fed index to 14 from 22 translated to a surprisingly strong 55.7 on an ISM-adjusted basis, while the Markit Services flash PMI rose to 52.1 from 51.3. Thanks to the weak equipment data, the mix lowered our GDP growth forecast to a flat figure from 0.3% in Q1 and a 2.0% clip from 2.2% in Q2. The factory sector remained weak through March despite the bounce for factory sentiment, and we still expect an upturn in the factory figures in Q2.

Main Macro Events Today

FOMC Rate Decision: 18:00 GMT – No change expected and as there is no press conference the actual words in the Monetary Policy Statement released at 18:30 GMT will be scrutinized very closely.

UK – GDP Prelim:.    08:30 GMT – A fall to 0.4% is expected from 0.6% last quarter and the y/y figure is expected to shrink to 2% from 2.1% last time. GBPUSD has been in a strong uptrend recently.



Australian CPI much weaker than expected
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