Dollar dips amid Japan rumbles

The local unit has seen collateral damage from jitters over Japanese economic weakness.

The Australian dollar was lower in late trade on Thursday, despite news of a sharp narrowing of its trade deficit in April, as weakness in Japanese shares spooked the region.

The yen hit a two-week high against the US dollar, after Bank of Japan policy board member Takehiro Sato said the central bank’s negative rates could harm the economy and were a contradiction to the bank’s massive asset buying program. Traders flocked to the yen on speculation that additional easing measures would not be implemented soon.

Sean Callow, currency strategist at Westpac, said the softness in the Australian dollar was “collateral damage.”

The yen’s jump came on top of disappointment that Prime Minister Shinzo Abe announced no details about a widely expected supplementary budget the previous day, when he said that the government would postpone a consumption tax hike for two-and-a-half years.

At 5.40pm (AEST), the Australian dollar was trading at US72.28 cents compared with US72.57c at the same time on Wednesday.

Australia’s trade deficit narrowed by 20 per cent in April, but the improvement did not come through the channels of iron ore and gas exports which lit up the country’s ports in the first quarter.

The trade gap narrowed to $1.58 billion from a deficit of $1.97bn dollars in March. The improvement was driven by a 1 per cent rise in exports and a 1 per cent drop in imports.

The big contributors in April were exports of farm goods, which jumped 5 per cent from March, while gold exports rose 8 per cent, the Australian Bureau of Statistics said. A boom in services exports extended through the month, rising a further 2 per cent.

Surprisingly, mining and gas exports, despite turbo-charging economic growth in the first quarter, were weaker in April. The volume of iron ore shipments dropped 7 per cent from March, steaming coal exports fell 6 per cent, while liquefied natural gas shipments fell 8 per cent.

Elsewhere, retail sales growth in April was softer than expected, confirming that consumers’ budgets are constrained. Retail sales rose 0.2 per cent in April from a month earlier, short of the 0.3 per cent rise expected by economists.

Matthew Hassan, economist at Westpac Banking Corp, said the soft retail result reflects aggressive discounting due to rivalry between retailers, especially in the food sector. The price war might conceal the fact that consumer spending is stronger than thought, he added.

“The weakness instead says more about prices, retail inflation, margins and profitability,” he added.

Dow Jones newswires