Australian dollar falls after weak retail sales
After falling 1.60% last week, the Australian dollar printed a fresh multi-month low amid disappointing retail sales.
AUD/USD reached $0.7353 on Tuesday morning as retail sales contracted -0.1%m/m in March, missing estimates of +0.3% but this was better than a downwardly revised figure of -0.2% in the previous month.
This was the icing on the cake for investors, especially after the massive debasement of iron ore prices that continues to add pressure on an already wounded mining sector. On the Dalian Commodity Exchange, September future contract slid 1.90%, falling to CNY 461 a metric ton, compared to CNY 685 in February.
Since the beginning of the year, investors have been quite enthusiastic regarding Australia’s economic outlook, especially against the backdrop of stabilisation in China. However, clouds started to gather on the horizon as investors have started to express worries regarding the huge level of indebtedness of the Chinese private sector.
All the conditions the been met for weaker growth in the first quarter. We therefore anticipate that the Aussie faces a tougher period ahead, especially as investors are still heavily positioned for further appreciation of the Aussie. The unwinding of the long speculative positions – net long non-commercial positions currently stand at almost 40% of total open interest as reported by the CFTC – can only accelerate AUD debasement.
Switzerland: Unemployment rate declines
The Swiss unemployment rate decreased to 3.3% in April – but we recall that since 2011, the unemployment rate has increased from 2.7%.
There are two major things that can be said about this. First, the Swiss economy is very resilient despite the strong franc and the jobless rate is still very low. Secondly, the trend is anyway somewhat negative, which shows that the economy is suffering from the strong franc.
After the French election, we are seeing the EURCHF back above 1.09, which is definitely taking away some more pressures from the SNB. The Swiss institution is certainly very happy, at least in the short-term, to see European political uncertainties moving away. In a few weeks the French parliamentary election will be held but we do not see opposition parties gaining the advantage at this stage.
The next SNB meeting will be held in June and we do not see any change in the market conditions. Rates are not going to be hiked or lowered and will likely stay at -0.75%. Swiss Monetary Policy is going to remain loose for some more time!
