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By Gaurav Kashyap, Head of DGCX Desk at Alpari ME DMCC
Australian dollar slips on dovish RBA meeting
The Australian Dollar slipped below 1.0400 levels for the first time since January as dovish meeting minutes from the Reserve Bank of Australia kick started a wave of selling which saw the pair drop from 1.0600 levels to close Tuesday's session at 1.0478.
The RBA's meeting minutes showed that "so long as inflation remained well contained, there would be ample scope for the Bank to ease policy in such a scenario." Despite the fact that the major risk of Europe had subsided, the Australian economy has been plagued by slowing output (YoY GDP was at 2.3%, Exp 2.4%, Prev 2.6%) and has struggled to record any type of employment growth.
The creation of jobs in the household services and mining sectors have been offset by the large layoffs in the manufacturing and retail segments. The softening of Chinese growth has also had its weakening effect on the Australian Dollar and Thursday's HSBC Flash China manufacturing PMI for March came in at 48.1, lower than the previous month's 49.6. A reading of 50 suggests a contraction and as a result risk markets were spooked with the Aussie bearing the brunt of the selloff, touching a 65 day low at 1.0335 before recovering to close the week at 1.0462 against the US Dollar.
European manufacturing weakens
The EUR fluctuated between modest gains and losses and managed to close the week at 1.3269. The pair was sluggish throughout much of the week but finally broke out and recorded a weekly low at 1.3133 after data on Thursday showed that manufacturing weakened across Europe.
The overall Eurozone PMI index for manufacturing dropped to 47.7, Exp 49.5, Prev 49 while German PMI also fell to 48.1, Exp 51, Prev 50.2. Both readings falling below 50 levels, coupled with a weaker new industrial orders reading (YoY Euro-zone industrial new orders contracted -3.3%, Exp -3.1%, Prev -0.4%) reignited fears that Europe too was slowing down, leading to selloffs in the EUR currency. Despite the weakening data, EURUSD managed to tread above 50 day moving average and close the week on a positive note.
UK inflation cools, Osbourne presents budget
Across the English Channel, the GBP posted some marginal gains against the Greenback in a week which saw the monthly inflation figures, UK retail sales, the release of the BOE's meeting minutes and Chancellor of the Exchequer George Osbourne's UK budget presentation. Tuesday's UK inflation figures cooled as widely expected (UK YoY CPI slowed to 3.4%, Exp 3.3%, Prev 3.6% / Core CPI slowed to 2.4%, Exp 2.3%, Prev 2.6%) and the Pound took off against the US Dollar and EUR with UK gilts dropping following the data.
The BOE sprung no surprises in the release of its meeting minutes; the release showed that all nine members voted for rates to remain unchanged with two out of the nine members voting to increase the asset purchase plan. Similar to the previous release, the Pound pared some of its gains and moved lower, further accelerated by a weakening UK retail sales reading which came in at 1.0%, Exp 2.3%, Prev 1.1% YoY.
And finally, the Exchequer's presentation of the UK budget was largely in line with expectations. The key takeaways from the presentation was that economic growth forecasts are expected to grow at 0.8% in 2012 (up from 0.7%) and 2% in 2013 (down from 2.1%) with a plan to reduce the overall deficit to 21 billion Pounds by 2016-2017.
Staff
