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The Aussie got another old-fashioned beat-down during today’s Asian session, thanks to yet another drop in iron ore prices. The Loonie got a beating, too, likely because oil extended its losses. The prevalence of risk aversion, meanwhile, gave the safe-haven yen a bullish boost.

  • AIG’s Australian construction index: 51.9 vs. 51.2 previous
  • New Zealand’s inflation expectations: 2.2% expected, 1.9% previous
  • Japan still on holiday today

Major Events/Reports:

RBA Statement on Monetary Policy

The RBA released its quarterly Statement on Monetary Policy during the session. Forecasts for GDP, the jobless rate, and CPI inflation, which you can see below, were unchanged since the February Statement on Monetary Policy.

Source: RBA May Statement on Monetary Policy
Source: RBA May Statement on Monetary Policy

Other than that, the RBA also identified some key uncertainties. First among these is the possibility of a global slowdown, given that the “upswing [in the global economy] could be derailed by geopolitical events. Increased trade protectionism would also lower global growth prospects. There is still considerable uncertainty about trade policy in the United States and how authorities in other economies might respond to any changes to existing arrangements.

The Chinese economy is another key uncertainty because “If conditions in the Chinese housing market ease by more than expected, growth in demand for steel, and therefore iron ore and coking coal, could be lower than expected.”

The RBA also listed down the persistent slack in the labor market as well as its usual worries over consumer spending and the housing market.

Inflation expectations in New Zealand rise

According to the RBNZ’s latest quarterly survey of expectations, one-year-ahead inflation expectations rose from 1.56% to 1.92% while two-year-ahead expectations rose from 1.92% to 2.17%. Quarter-on-quarter, inflation is expected tyo come in at 0.41% in Q2 and then rise to 0.53% in Q3.

Great! Everything wasn’t really that great, though, since GDP expectations fell from an annual rate of 3.11% for the year ahead to just 2.81%. Survey respondents also expected the jobless rate to first worsen to 5.1% in one before improving to 4.9% in two years.

Iron ore drops yet again

After dropping super hard yesterday, Dalian iron ore dropped by a not-as-super hard 6.7% to 466 yuan ($67.58) per dry metric ton.

As usual market analysts linked the drop in Chinese iron ore prices to the continuing slide in Chinese steel prices. And the persistent slide in steel prices, in turn, was blamed on weaker demand from China amid signs of slowing construction activity and a buildup in inventory.

Oil plunges hard

Oil benchmarks suffered heavy losses during the morning London session.

  • U.S. crude oil was down by 2.09% to $44.57 per barrel
  • Brent crude oil was down by 1.80% to $47.51 per barrel

Market analysts pointed to doubts over OPEC’s oil cut deal to balance the market, especially with U.S. oil output on the rise.

Kuroda Speaks

BOJ Shogun Kuroda was interviewed by CNBC, and in that interview, Kuroda said that wage growth in Japan will accelerate, which will then push inflation higher.

“[A projected growth rate of] 1.5 percent is not great, but in Japan it is well above medium-term potential growth rate, meaning that the output gap continues to shrink and becoming positive and the labor market continues to tighten so that wages and prices would eventually rise to achieve the 2 percent inflation target around fiscal 2018.”

Kuroda also said that deflation “has gone already” but “headline inflation has been quite slow to adjust upward” mainly because of the past weakness in oil prices. And when Kuroda was pressed about the BOJ’s exit strategy, he implied that there is at least one in the works when he said the following:

“Inside the bank, of course, we have various simulations of potential exit strategies and so on and so forth. But as I said, it’s premature to openly discuss exit strategy at this moment when inflation rate is still close to zero — although improving.”

Major Market Mover(s):

AUD

The Aussie slid across the board right from the get-go, very likely due to yet another drop in iron ore prices.

AUD/USD was down by 36 pips (-0.48%) to 0.7374, AUD/JPY was down by 53 pips (-0.64%) to 82.86, AUD/CHF was down by 25 pips (-0.34%) to 0.7281

CAD

The Loonie was the second weakest currency of the Asian session. There were no apparent catalysts for the Loonie, but oil extending its losses and its highly likely that the Loonie got weighed down by that.

NZD/CAD was up by 16 pips (+0.18%) to 0.9463, EUR/CAD was up by 39 pips (+0.26%) to 1.5136, GBP/CAD was up by 38 pips (+0.22%) to 1.7813

JPY

Risk aversion prevailed in the Asian session, thanks to the commodities rout. And that apparently sent safe-haven flows towards the yen since it ended up as the top dog of the session. However, Kuroda’s hawkish comments during the CNBC interview may have been a major factor as well.

USD/JPY was down by 30 pips (-0.27%) to 112.24, CAD/JPY was down by 42 pips (-0.51%) to 81.40, NZD/JPY was down by 29 pips (-0.37%) to 77.05

Watch Out For:

  • 7:00 am GMT: SNB foreign currency reserves (68B previous)
  • 8:10 am GMT: Euro Zone retail PMI (49.5 previous)