WSJ:Australian Dollar Slumps On GDP Data; Yen Rallies
By Clare Connaghan
The Australian dollar came under heavy selling pressure Wednesday after first-quarter economic growth data disappointed, while the yen gained ground against the buck after the Japanese government's new economic plan failed to impress, all ahead of closely watched U.S. ADP employment data due for release later in the day.
The Aussie dollar slumped to a 17-month low against the euro and fell by over 1% against the greenback on the day following the release of data showing gross domestic product grew by 0.6% in the first quarter from the preceding three months. This was below the 0.7% rise economists had expected.
The data have increased expectations "there could be another rate cut" from the Reserve Bank of Australia, said Jane Foley, a G10 foreign-exchange strategist at Rabobank in London.
But the data weren't dire, illustrating that "the market just wants to sell" the Australian currency, said Ms Foley.
The Australian currency has fallen around 6% since the start of May on growing expectations that the U.S. was nudging closer to scaling back economic stimulus, and on signs that China's economy has slowed.
In other news, the dollar remained under pressure against the yen in European trading hours, continuing to trade below the Y100 mark after a closely eyed speech by Prime Minister Shinzo Abe on his plan to revive the economy fell short of market expectations. Mr. Abe pledged to aim for 2.0% growth in real terms and 3% in nominal terms over the next decade through measures including deregulation, tax reduction, and promoting foreign direct investment into Japan.
"There were some new elements in his speech, but on the whole, it undershot market expectations," Dai Sato, senior vice president of the forex division at Mizuho Corporate Bank said.
The Nikkei Stock Average closed down 3.8%, the index's fifth decline of more than 3% in less than two weeks. European stock markets also suffered. As a weaker yen and stronger stocks have gone hand-in-hand as major bets on the success of Mr. Abe's economic plans, Wednesday disappointment boosted the currency.
The euro came under some pressure against the dollar after data showed retail sales in the 17 nations that use the single currency fell sharply in April. Other data published in European hours included euro-zone services purchasing managers index data for April, which came in at 47.2, slightly missing expectations of 47.5. Meanwhile, Eurostat kept the currency area's gross domestic product in the three months to March, unrevised at -0.2%, the sixth consecutive quarter of contraction.
The pound rose to fresh day highs against the euro and dollar after data showed the U.K.'s dominant services sector grew at the fastest pace in more than a year in May. The services PMI rose to 54.9 in May, the strongest level since March 2012, and up from 52.9 in April, the monthly survey compiled by data analyst firm Markit and the Chartered Institute of Purchasing & Supply showed.
Looking ahead, the May ADP employment survey due at 1215 GMT will be closely watched, as its often viewed by the market as an important guage for Friday's nonfarm payrolls number. Also of interest will be the ISM non-manufacturing data due at 1400 GMT.
In emerging markets, the Brazilian real was trading steady against the dollar as local markets are yet to reopen following the announcement late Tuesday that the special tax on certain foreign investments was being reduced to zero from 6% because of changes in the global financial landscape. Strategists at Credit Suisse said the move is likely to trigger a rally in the real, but only in the short term. "The backdrop of falling commodity prices and deteriorating external accounts is likely to undermine support for the real over the medium term, especially if combined with higher U.S. yields," the bank said.
Elsewhere, the Polish zloty was coming under a little bit of pressure against the euro ahead of the central bank's decision on interest rates, where the majority of economists expect borrowing costs to be cut by 0.25 percentage, bringing the main rate to a new all-time low of 2.75%.
"Some market participants even expect a 50 basis point rate step today, as the economic data since the last meeting was anything but positive," said Thu Lan Nguyen, a strategist at Commerzbank.
At 1033 GMT, the euro was trading at $1.3064 against the dollar, compared with $1.3081, late Tuesday in New York, according to trading system EBS. The dollar was at Y99.545 against the yen, compared with Y100.05, while the euro was at Y130.020, compared with Y130.87. The pound was trading at $1.5353 against the dollar, compared with $1.5316 late Tuesday in New York.
The Wall Street Journal Dollar Index, which tracks the U.S. dollar against a basket of major currencies, was at 74.502 from 74.502.
A summary of key levels for chart-watching technical strategists is below:
Spot 1030 GMT 0.9556
3 Day Trend Bearish
Weekly Trend Bearish
200 day ma 1.0257
3rd Resistance 0.9705
2nd Resistance 0.9658
1st Resistance 0.9610
Pivot* 0.9677
1st Support 0.9528
2nd Support 0.9500
3rd Support 0.9388
(Dow Jones Technical Strategist Francis Bray contributed to this story.)
Write to Clare Connaghan at clare.connaghan@dowjones.com
