Producer Price Disinflation and Chinese and Australian Interest Rate Cuts – Currency Thoughts
Producer Price Disinflation and Chinese and Australian Interest Rate Cuts
May 20, 2025
The U.S. dollar’s biggest overnight move was a 0.9% advance against the Australian dollar that followed an as-expected cut in the Reserve Bank of Australia Official Cash Rate but also a more dovish-than-expected statement and press conference explaining the action. The weighted DXY dollar index ticked only 0.1% higher.
Whereas U.S. stock futures are slightly lower, European stock markets are 0.5-1.0% higher, and the Hang Seng index climbed 1.5% as the Hong Kong dollar, which has been confined to a narrow trading band against the U.S. currency for over four decades, moved lower within that band. Ten-year sovereign debt yields are narrowly mixed. The price of gold edged marginally higher, while those of Bitcoin and oil are down by 0.7% and 0.3%.
Australia’s OCR cut of 25 basis points to a 23-month low of 3.85% today was the second such move since February, but Governor Bullock and a released statement acknowledged significant changes since that initial reduction. Price risks have diminished, while the global landscape for growth now looks much less supportive. Bullock revealed that monetary officials considered cutting the rate by 50 basis point reduction and proclaimed that “if we need to move quickly, we can.”
China’s 1- and 5-year Loan Prime Rates, which frame market rates for corporate and household loans and for mortgages were also reduced at today’s monthly fixing by ten basis points each. These were the first changes since cuts of 25 basis points last October, and their new levels of 3.0% and 3.5% had been correctly anticipated by market analysts. Chinese inflation remains too low, and officials have taken several growth-supporting actions to promote growth, which is in danger of undershooting the government’s goals.
In contrast to these dovish signals in Australia and China, New York and Atlanta Federal Reserve District presidents Williams and Bostic each made remarks within the past 24 hours intended to further dispel speculation that the federal funds target band might be lowered further anytime before at least September.
German producer price declined in April of 0.6% month-on-month and 0.9% year-on-year both exceeded market expectations. The 0.9% drop compared to April 2024 was the largest 12-month rate of decrease in a half year.
Czech PPI inflation of -1.3% in April followed a dip of 0.3% in the year to March and was its most disinflationary in five months.
In Portugal, producers prices last month were 2.7% lower than a year earlier, their largest such drop in 11 months.
PPI inflation in Estonia is still above zero percent but at 1.4% was only half as high as March’s reading.
Georgian PPI inflation of 5.1% last month represented a 13-month low.
Canadian consumer price inflation slowed to a 7-month low of 1.7% in April from 2.3% in March and 2.6% in February. The latest reading was almost as low as the 42-month low of 1.6% last September and well below the 8.1% previous peak in mid-2022.
Euroland’s current account surplus widened to a 9-month seasonally adjusted high of EUR 50.9 billion in March. The unadjusted surplus over the past twelve reported months of EUR 445 billion was 42% wider than a year earlier and equivalent to a 3.0% of GDP.
A 1.1% year-on-year drop in euro area construction output in March was the third decline in a row and the deepest in five months. Hourly wage inflation in Euroland slowed a half percentage point to a 10-quarter low of 3.2% in the first quarter of 2025, according to preliminary information.
Consumer confidence measures were reported this Tuesday by several economies. Sentiment remained unchanged in the Netherlands in May at April’s 18-month low and dropped in Denmark to a 26-month low. Belgian consumer confidence improved seven index points to a 3-month high, while Turkish confidence ticked upward to a 2-month high.
In Denmark, which owns Greenland, real GDP dropped 0.5% last quarter, breaking a string of eight consecutive periods without a negative reading and trimming the year-on-year growth rate to 3.6% from 4.2% in the final quarter of 2025.
Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Canadian CPI, Euroland current account and construction output, German PPI, Peoples Bank of China, Reserve Bank of Australia
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