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Weekly market wrap-up

Treasury Team

Australian Consumer Price Index for Q1/19 came in weaker than expected, falling well below the RBA’s 2-3% target range. The AUD dropped temporarily below the important 0.70 level but then managed to bounce back. The pace of inflation has weakened noticeably which is adding to the case for easier monetary policy. This is making the RBA meeting on the 7th May and RBA Statement on Monetary Policy on the 10th a lively event to keep a look out for.

Oil rallied on the news that the US would not renew its oil sanction waivers that allow countries to buy Iranian oil for 5 nations which included China, India, Japan, South Korea and Turkey. Currencies of oil importing nations such as INR and TRY suffered on the headline while currencies of exporting oil nations such as CAD and NOK strengthened. On Friday, Oil futures dropped 2.9% following mixed Headlines from Russia and US leaders.

The BoC left rates unchanged at 1.75% for the fourth time, as expected, maintaining its dovish tone as the economy faces a slowdown. Their GDP outlook for 2019 dropped to 1.2% from 1.7%, and to around 2% in 2020. USDCAD spiked to 1.3522 at the release of the headline. Governor Poloz afterwards emphasised patience and reiterated that the next move in rates is likely to be a hike than a cut, which help the USDSCAD fall back below the 1.35 handle.

Strong US data propelled the Greenback to increase +0.7% versus the Euro and the Loonie, +0.6% versus the Sterling, and +1.5% versus the Aussie dollar. US domestic GDP came in at 3.2%, when the expectation was 2.6%. Additional data showed that the number of Americans filing for unemployment benefits fell to its lowest level in almost 50 years. Furthermore, the Core Durable Goods Orders rose by the most in eight months in March, showing surprising strength. The USD Index lost some ground at the end of the week as market participants realised that 1.7% of the 3.2% GDP increase came from inventory accumulation and net exports (sparked by a big -3.7% drop in imports).

Japan’s Industrial production shrank at its fastest level since 2015, slipping 0.9% on the month for March as exports slumped. This is a leading indicator for GDP which probably shrank in the first quarter. Governor Haruhiko Kuroda launched a radical program to reflate prices nine years ago, however, the BOJ now projects that it won't accomplish its 2 percent inflation target at least through March 2022. The Japanese Yen was the best performer within the major currencies last week; it rallied 0.3 percent versus the US dollar and 1.8 percent versus the Aussie dollar.