Contradictory signals in Australia

There was evidence of a slowdown in the Australian economy on Thursday with the release of weaker than expected retail sales figures for January and data showing that rises in house prices weakened significantly towards the end of last year.
Although retail sales rebounded after three months of declines, increasing 0.6 per cent from December, they were weaker than market predictions of a 0.8 per cent rise, mainly because of a fall in food sales.
The data came as John Howard, prime minister, suggested there was no need for further hikes in interest rates, a day after publication of poor fourth quarter growth figures and the country's first tightening in monetary policy in over a year.
The increase in official rates, by 25 basis points to 5.5 per cent, was controversial given the economic slowdown, yet many economists expect the Reserve Bank to move again in the coming months. For some time, the bank has been warning of wages growth and mounting inflationary pressures.
House prices rose 0.6 per cent in the December quarter, partly reversing a 0.7 per cent decline in the previous three months. But they increased just 2.7 per cent year-on-year, down from 8 per cent growth in the third quarter and 13 per cent in the second.
“Inflation is low, there is no sign that wages are breaking out and there are signs that growth in the economy has moderated,” said Mr Howard, who was re-elected for a fourth term in October after campaigning heavily on his record on the economy. “So if you put all of those things together, there's a respectable argument that there should not be another rise for a while.”
The prime minister, who when he came into office in 1996 cut back Australia's immigration intake and has taken a firm line on illegal migrants, also backed proposals for an increase in skilled migration to help ease labour market shortages.
At just over 5 per cent, unemployment is at a 30-year low, with many businesses complaining they are being constrained by the skill shortages. The government is believed to be considering a one-off increase of some 20,000 places in its annual migration programme, at present set at about 120,000 a year.
“We have an economic need at the moment for more skilled people,” Mr Howard said. “If part of the solution to that problem is to bring in more skilled migrants, then I'm in favour of it.”

Greenspan fails to support the dollar

The single currency retreated off its lows of 1.3093 as Fed chairman gave a brief commentary on the growing US economy, but more loud was his concern regarding the US fiscal deficit which disappointed the dollar bulls.
Surging oil prices (around $53) as a result of refinery problems in Texas also pressured the greenback slightly and it gave up some of the gains notched in the European session after the release of disappointing Euro zone Q4 GDP at a mere 0.2% and a flat UK manufacturing PMI figures for February at 51.8.
Dollar was not much impacted by a report showing US companies’ plans to layoff 17% more workforce in February (compared to January) due to rising M&A activities.
But it did cause some doubts in traders’ mind as it contrasts sharply with the weekly jobless claims showing a steady improvement in February thus giving hopes of a formidable payrolls report. Any nasty surprises on the downside for the payroll on Friday (below 200K) will get the knives out for dollar.
Today’s data includes the ISM services figures expected to be strong that may give some hopes for tomorrow’s payrolls, needed for giving an upward fillip to the dollar.
Technically, Euro meanders between 1.3080 – 1.3150 waiting for a trigger to cart it upwards with 1.3360 capping any major breakout. Sterling has major support at 1.9050 (a 50% Fib of the Jan-Feb rally in the dollar) with resistance at 1.9260.

Falling Australian dollar rescues the greenback

The greenback edged up against the international majors in early Tokyo trade as the Australian dollar tumbled on disappointing data release, which indicated a large economic slowdown in Q4 growth.
The Aussie plunged from 0.795 levels to early 0.78 as the GDP grew a meager 0.1% vis-à-vis the expected 0.5% gain, despite a widely expected quarter percentage rate hike by the Reserve Bank of Australia to 5.5%.
The single European currency declined below the 1.32 mark on emerging concerns in the eurozone – PMI manufacturing survey was flat at 51.9, Germany’s jobless claims soared by 161k to 4.88 million to touch a record high while the adjusted unemployment rate surged to a 7-year peak of 11.7% and European Commission’s indicator of economic sentiment plummeted to a 12-month low.
Currency markets completely ignored the slowdown in US manufacturing activity in February as it shifted focus to gloomy fundamentals emanating from Europe that reinforced anticipation for steady eurozone interest rates.
The Japanese yen continued to hover around the 104.5 mark as strong household spending figures provided adequate boost to prevent any decline. Following euro’s fall, Sterling dropped below the 1.92 mark to trade around the mid 1.91s.

Dollar bulls smile after data releases

The dollar regained some lost ground against the major currencies on better than expected data releases from the US.
The Core PCE Index rose to 1.6 per cent up from 1.5 per cent the previous month, the Chicago PMI numbers were marginally better than expected at 62.7 up from 62.4 in January. All wasn’t well for the dollar as the personal incomes tumbled 2.3 per cent after a record surge in December.
This along with lower inflation rated from the Eurozone at 1.9 per cent from 2.4 per cent, was reason enough to push the euro below the 1.32 levels.
Sterling was the other casualty to the US figures settling at 1.9180 after falling to a low of 1.9164.
Yen held on to the 104.50 levels despite the US number as traders rejoiced after unexpectedly strong Industrial Production up 2.1 percent and retail sales figures.
The PMI figures though positive for the dollar, would fail to see the currency rally further unless supported by Tuesdays ISM figures and Fridays payroll numbers.

Dollar weakens to position squaring and oil pressure

The dollar fell across the board on Friday, despite encouraging Q4 GDP numbers, which came out higher than market’s expectations.

The Q4 GDP figure at 3.8 percent was above the market consensus of 3.7 percent but was still not good enough for the USD to hold on to its gains as traders were looking for a number closer to 4 percent. Further the single-family home sales numbers also disappointed the market and thus lead to a further sell off in the world’s reserve currency.
As if all this was not enough surging oil prices and comments from the Saudi oil minister acknowledging persistently high oil prices in the future also weighed on the greenback.
Yen, despite signs of continuing deflation in the economy and weaker than expected growth, gained further ground against the dollar as the dollar sell off vis a vis the single currency spilled over.
The GDP numbers from the US show that the economy is on the road to improvement and would thus lead to further rate hikes by the Fed. The market is torn between dollar positive data, increasing attractiveness of the dollar denominated assets and dollar negatives like the twin deficit.
This week’s crucial data includes the payrolls numbers and the manufacturing data.