AUD/USD has posted slight gains in the Thursday session, erasing most of the losses seen on Wednesday. In North American trade, AUD/USD is trading at 0.6985, up 0.23% on the day. In Australia, the trade surplus narrowed to A$4.87 billion in April, down from A$4.95 billion a month earlier. This missed the forecast of A$5.05 billion. Later in the day, Australia releases AIG Construction Index and Home Loans. In the U.S., unemployment claims rose to 218 thousand, above the estimate of 215 thousand. On Friday, the U.S. releases nonfarm payrolls and wage growth.
Australia’s trade surplus missed expectations, as the global trade war has taken a bite out of the country’s key export sector. The slowdown in China has translated into economic pain for Australia, as the Asian giant is Australia’s number one trading partner. Growth in Q1 was just 1.8% on an annualized basis, far lower than the long-term average of 3.5%. The RBA has finally stepped in with a rate cut, but will there be more pain before gain? The bank lowered rates from 1.50% to 1.25%, marking the first time the RBA has cut rates since August 2016. If key economic indicators continue to struggle, we could see another rate cut in the second half of the year.
Is the Federal Reserve on its way to lowering rates for the first time in 2019? Since raising rates back in December, the Federal Reserve has sounded neutral with regard to rate movement. However, the Fed made a dramatic U-turn this week, with Fed Chair Jerome Powell hinting at a rate cut. On Tuesday, Powell said that the Fed would “act as appropriate to sustain the expansion”. It was also noteworthy that Powell did not mention his “patient” approach to monetary policy, which has been a buzzword in his recent comments. Earlier in the week, St. Louis Fed president James Bullard also discussed the need to lower rates in order to stabilize the economy. Bullard said that the Fed might have to cut rates due to low inflation and the ongoing trade war with China.
