Price action in currency markets has been very limited overnight and this morning. The AUD/USD cross has been choppy. Australian retail sales were flat in March and were up only 0.8% in Q1. Consumer demand is not particularly strong, CPI-inflation is unlikely to take off and the RBA is likely to maintain its neutral stance. For now rate hikes look off the cards in 2018.
The Euro has so far taken in its stride pretty soft German trade and industrial output data for March and news of a breakdown in coalition talks in Italy. Germany is still posting large trade surpluses but not for the right reasons, with exports up only 1.7% mom and imports down 0.9% mom while industrial output growth of 1.0% mom only partly makes up for the 1.7% mom contraction in February. Germany’s economy will be fine but growth slowdown is a negative for its European trade partners.
Italy will likely have to hold another general election or stick with a caretaker government as the third round of coalition talks between the main political parties have broken down. President Sergio Mattarella has the last say on the matter. This is not an ideal political backdrop in the Eurozone’s third largest economy but markets are arguably used to political volatility and uncertainty in Italy (six prime ministers in past 12 years).
