Australian Dollar Outlook - 24 April 2014

Stocks Fall as Nasdaq Slides; Dollar Eases on Jobs Data Reuters

Bell FX Currency Outlook: The Australian Dollar consolidated overnight, following the sharp fall it recorded in response to yesterday's softer CPI report and is currently trading around USD 0.9285.

Australia: Q1 CPI data showed that momentum in underlying inflation eased, with the average of the trimmed mean and weighted median inflation at 0.5% q/q and 2.65% y/y. This was below market expectations (Mkt: 0.7% q/q) and also softer than the RBA foreshadowed in its February Statement on Monetary Policy. Importantly for the inflation outlook, nontradables inflation appears to have softened.

The low core CPI reading will be welcomed by the RBA after the high Q4 reading, especially given the moderation in non-tradables inflation. It will allow the Bank to continue to pursue the current very accommodative setting of monetary policy to buttress the economy from the expected drag on growth from weaker mining investment and suggests the period of stability in the Australian official interest rate can continue for some time.

Last night, Treasurer Joe Hockey said the Government intends to return the underlying cash balance to a surplus of 1% of GDP by 2024. This will done by capping real annual increases in government spending at only 1¾% over the next decade.

Majors: EUR/USD was boosted following stronger-than-excepted PMI data although these gains were unwound later in the session. The USD managed to consolidate the gains made during the Asian session, and following the Australian CPI release, the AUD remained the weakest G10 currency.

Earlier this morning the NZD rallied a touch after the RBNZ raised rates as was widely anticipated, however gains were limited and a full rate hike cycle is well priced.

Looking ahead, the US Federal Reserve meeting will be important for the direction of the broad USD, where expectations of rate hikes have begun to creep back into the interest rate market.

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