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U.S Inflation and Trump to Drive the USD, with an Eye on Italy

Easing concerns over Italy and upbeat economic data out of China supported risk appetite early, pulling the Dollar into the red, ahead of today’s inflation numbers out of the U.S, with the Oval Office chatter on trade also there.

Earlier in the Day:

Economic data released through the Asian session this morning was on the heavier side and included industrial production numbers out of Japan, May private sector PMI numbers out of China, business confidence figures out of New Zealand and private sector new CAPEX and credit figures out of Australia.

For the Japanese Yen, industrial production rose by just 0.3% in April, falling short of a forecasted 1.5% increase and March’s 1.4% rise, according to prelim figures.

Industries that contributed to the increase included transport equipment, general purpose, production and business orientated machinery and fabricated metals.

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Industries that weighed included electronics parts and devices, electrical machinery and chemicals (excl. drugs).

Forecasts are for industrial production to rise by 0.3% in May, revised up from last month’s 1.6% fall, while production in June forecasted to fall by 0.8%.

The Japanese Yen moved from ¥108.749 to ¥108.674 against the Dollar, upon release of the figures, before rising to ¥108.66 at the time of writing, up 0.23% for the morning, the Yen showing little response to the soft numbers going into the 2nd quarter.

Out of China, May’s private sector PMI numbers impressed. The manufacturing PMI rose from 51.4 to 51.9, coming in well ahead of a forecasted 51.3, while the non-manufacturing PMI rose from 54.8 to 54.9, coming in ahead of a forecasted 54.8.

The Aussie Dollar moved from $0.7576 to $0.75692 upon released of the figures. The better than expected PMI numbers providing little support as concerns over a possible trade war offset any upbeat sentiment towards the Chinese economy.

For the Kiwi Dollar, business confidence reversed in May, with the ANZ Business Confidence Index showing that 27% of businesses are pessimistic about the year ahead, down 4 points from April’s 23%.

Adding to the negativity was a 4 point fall in the ANZ Own Activity Index, the index falling from +18 to +14, the lowest level since November of last year, a 10 point slide in the retail sector sub-index weighing heavily.

Looking at the activity indicators:

  • Employment intentions eased from +9% to +7%.

  • Profit expectations fell from -1% to -9%.

  • Export intentions fell by 10 points to +13%, despite the weaker Kiwi Dollar.

  • A net 28% of businesses expect it to be tougher to get credit, up from 26% in April.

The softer number was attributed to negative sentiment across the retail and construction sectors

The Kiwi Dollar moved from $0.6988 to $0.6792 upon release of the figures before recovering to $0.6987 at the time of writing, down 0.01% for the morning.

For the Aussie Dollar,

Private new capital expenditures rose by 0.4% in the 1st quarter, falling short of a forecasted 0.8% rise, following a 4th quarter upwardly revised 0.2% increase.

  • Expenditure on buildings and structures fell by 1.3%, while expenditures on equipment, plant and machinery rose by 2.5%.

  • The fall in expenditures on buildings and structures was attributed to a 15.8% fall in manufacturing CAPEX, with other selected industries falling by 1.8%, while mining CAPEX rose by 0.8%.

  • The rise in expenditures on equipment plant and machinery was attributed to a 2.9% rise in mining CAPEX, with CAPEX in manufacturing and other selected industries rising by 1.8% and by 2.5% respectively.

  • By industry, total mining CAPEX rose by 1.2%, while manufacturing CAPEX fell by 3.4%. CAPEX in other selected industries rose by just 0.5% in the 1st

Private sector credit rose by 0.4% in April, which was in line with forecasts, whilst easing from a 0.5% rise in March.

The Aussie Dollar moved from $0.75667 to $0.75577 upon release of the figures, before easing further to $0.7561 at the time of writing, down 0.18% for the morning, the weaker Aussie stats weighing through the morning.

In the equity markets, it was risk-on, with the CSI300 leading the way, up 1.56% off the back of the better than expected PMI numbers and easing concerns over Italy. The Nikkei and Hang Seng were up 0.8% and by 0.75% at the time of writing, while the ASX200 managed to move back through to 6,000 levels with a 0.41% rise ahead of the close.

The Day Ahead:

For the EUR, economic data scheduled for release this morning includes May’s prelim inflation figures out of France, Italy and the Eurozone, 2nd estimate GDP numbers out of Spain for the 1st quarter and the Eurozone’s April unemployment rate.

While we will expect the Eurozone’s May inflation figures to influence the EUR this morning, political noise from Italy and Spain will continue to be the key drivers near-term, the EUR finding its feet on Wednesday, following a decision by Italian President Mattarella to give the Five Star – League coalition more time to form government.

It was a salvage operation by the Establishment to avoid a snap election that could have spelled the end of Italy’s membership in the EUR.

The EUR is not completely free from the region’s political woes however, with Rajoy also under pressure ahead of tomorrow’s vote of no confidence.

At the time of writing, the EUR was down 0.01% to $1.1664, today’s stats and political noise the key drivers through the day.

For the Pound, stats are limited to housing sector data that are unlikely to have a material impact on the Pound through the day, easing demand for the Dollar having provided the Pound with much needed support on Wednesday.

The Pound was up 0.14% to $1.3304 at the time of writing, supported by the risk-on sentiment through the morning, though a reversal could come at any time should there be any Brexit chatter from Brussels.

Across the Pond, key stats through the day include the FED’s preferred core PCE price index and deflator numbers, personal spending figures, the Chicago PMI, pending home sales data and the weekly jobless claims numbers.

Following the weaker than expected ADP nonfarm employment numbers on Wednesday, there will be greater influence than normal from the weekly jobless claims numbers, though it’s going to boil down to April’s inflation and personal spending numbers. Forecasts are for inflation to soften in April, while spending is expected to see the same pace of growth, which would be a Dollar negative scenario, softer inflation easing pressure on the FED to project a 4th rate hike for the year at next month’s meeting.

At the time of writing, the Dollar Spot Index was down 0.03% to 94.045, recovering from the morning’s 94.012 low, with today’s stats, the Oval Office and FOMC member Bostic to provide direction through the day.

Across the border, 1st quarter and March GDP numbers will be the key driver for the Loonie on the data front, while market risk appetite and crude oil prices will also influence.

At the time of writing, the Loonie was up 0.04% to C$1.2868 against the U.S Dollar, the Wednesday rally coming off the back of a more hawkish than anticipated Bank of Canada and a shift in market risk appetite through the day that supported a bounce back in crude oil prices. With the BoC eyeing a summer rate hike, today’s stats will certainly have an impact on the Loonie.

This article was originally posted on FX Empire

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