The Australian dollar weakened slightly yesterday after survey showed slightly lower expectations of inflation after the government moved to repeal a tax on carbon. The August MI inflation expectations for the trimmed mean came in at 2.6% from 2.7% in July.
Out of the US, weekly applications for unemployment aid climbed 21,000 to a seasonally-adjusted 311,000. Jobless claims figures, along with subdued inflation numbers, made it more likely the US central bank would leave rates on hold for a while. The US dollar is holding on to its gains against the three most actively traded currencies because, with these data disappointments, the outlook for the US is brighter than the outlook for the Eurozone, UK and Japan.
The latest in a batch of disappointing global economic indicators that have clouded the prospects for American growth lead the Eurozone’s recovery to an outright halt in the second quarter. Economic output in the 18 nation euro area stalled in the April and June period, after four quarters of minimal gains, Eurostat data showed. Fear of rising geopolitical tensions have added to the risks as the EU’s trade sanctions against Russia over the crisis in Ukraine, and the counter sanctions by Russia, are likely to crimp the Euro area’s sales of farm goods. The weak report on the Eurozone comes after news that Japan’s economy, shrank by a larger than expected 1.7 percent in the second quarter, or 6.8 percent at an annual rate.
The British pound steadied after sliding on yesterday as the Bank of England hinted that markets may have to wait longer than they thought for a long awaited hike to its main interest rate. Bank of England set to sit tight as low wage inflation offsets strong British output and falling unemployment, and chance of an interest rate rise in 2014 and perhaps even the first quarter of 2015 appears to be on the cards
The New Zealand dollar traded better than expected with data showing weaker economic reports in the US and Europe, enhancing the lure of local assets and pushing the kiwi to touch a 10 day high overnight. The New Zealand dollar jumped higher after data yesterday showed second quarter retail sales rose more than expected, reinforcing expectations interest rates will resume their upward path next year.