Aussie ebbs

Distractions

As the vote on Britain's EU membership grows closer the political battle is getting desperate. Over the weekend the Brexiteers were dangling the prospect of duty free fags and booze while the Remainants were warning that departure would mean another Scottish independence referendum. Meanwhile the yen flew and the Aussie dived.

Following the Bank of Japan's failure on Thursday morning to deliver the additional monetary stimulus that everyone was expecting, the yen has strengthened to an 18-month high against the US dollar. It is up by 1.8% against sterling since Thursday morning while its closest competitors, the euro and the Swiss franc have risen by just 0.8%. Analysts suspect that if the yen moves much higher against the dollar the Bank of Japan will have to intervene to keep it in check.

At the other end of the field the Australian dollar is down by -1.5%. Last Wednesday the Aussie felt the chill of a quarterly fall in Australian consumer prices, the argument being that slower inflation would encourage the Reserve Bank of Australia to consider an interest rate cut. Investors didn't expect one as soon as today though, so when the RBA lowered its Cash Rate this morning from 2% to 1.75% the Aussie took another bath. On the week it is down by -3.2% against sterling and by -6.5% against the yen.

Slower growth dogs dollar

Last Wednesday the pound was celebrating four successive days of world-beating performance. Since then it has slipped back into mediocrity, falling by an average of -0.8% against the other dozen most actively-traded currencies. However, it is up by that much against the US dollar, which was hurt by Thursday's GDP data.

The preliminary estimate showed America's gross domestic product expanding by an annualised 0.5% in the first quarter. On a quarterly basis that equates to growth of an almost invisible 0.1% and investors see it as another reason for US rates to remain on hold for the foreseeable future.

On Friday the figures from Euroland put first quarter growth at 0.6%, unemployment at 10.2% and inflation at -0.2%. The first two of those were better than expected; the third was worse. None is likely to alter the medium-term outlook for euro interest rates.

PMI time

As the United Kingdom celebrated workers' day yesterday the rest of the world was enjoying the monthly round of manufacturing sector purchasing managers' indices. The UK figure comes out this morning.

There was no clear message from yesterday's PMI readings. In Europe the numbers from Switzerland, Spain, Italy and pan-Euroland showed monthly improvements while the situation in France and Germany deteriorated. Canada was higher on the month but both US measures fell short of forecast.

Britain's manufacturing PMI is expected to be a couple of ticks higher at 51.2, which would put it half a point below Euroland and fractionally ahead of the States. The NZ dollar will be sensitive to the GDT milk price index and tonight's NZ employment data.