DirectFX-phone-number-and-phone-image3.gif

p_7_top.jpg

Get a free Quote

Name
Email
Phone
From CCY
To CCY
Amount
Message
please type the characters you see:
(spam filter)
spam control image
 
p_1_top.gif

Apply now

Obligation free account and currency commentary btn_apply_for.gif
p_1_bottom.gif
Browse By Topic

FX News

Most recent FX News:

Read more

FX Update - Merry Christmas

Written by Sam Coxhead on December 22nd, 2015.      0 comments

2:30PM (NZT)
Market Overview:
Holiday trading days : We will be working through the holidays- excluding the statutory non banking holidays of the 25th and 28th December, and 1st and 4th January.

All the team here at Direct FX wish you a safe and fun holiday period. Merry Christmas and a happy New Year!

The widely anticipated U.S. FOMC meeting passed last week and as widely expected saw the Fed increase the target funds rate from 0-0.25% to 0.25-0.50%. The decision is the first time since June 2006 that the Fed has raised rates and marks seven years since the FOMC took the rate to zero. The road back to a more normal rate setting will be a long one however. Despite indicating a path which would see a further 4 hikes in 2016 the Fed made it excessively clear that the pace of increases would be gradual and dependant on the quality of incoming economic data. All but three members expect rates to be at or below 1.5% by the end of 2016; members expect the funds rate to be 2.4% in 2017, down from the 2.6% projection in September. U.S. equities took the move in their stride, the prolonged period of low rates coupled with $3.7 trillion in quantitative easing have boosted U.S. equities by over 200% since the 2009 March lows, although during the period the U.S. economy has had the worst recovery since the great depression.

Australia
A quiet local calendar saw the AUD take its cue from offshore events last week. The U.S. FOMC meeting was the main event of the week, this saw the Fed raise rates by 0.25% as expected. Interestingly, the USD received an additional boost after the Fed failed to lower their forward interest rate path as far as many had expected. Last week’s RBA minutes delivered a relatively upbeat assessment of the Australian economy. The minutes noted an improving growth outlook and positive trends in the labour market. Weaker U.S. data and consolidating commodity pricing on Friday has helped the AUD lift marginally since our last report. The local data schedule is quiet over the holiday break, private and housing sector data will feature on New Year’s Eve day, building approvals and trade data will feature on January 7 prior to November retail sales on the 8th.

New Zealand
The NZD sits marginally higher in trade this week as the markets begin to wind down for the holiday break. Last week’s trade was dominated by the U.S. FOMC meeting. This saw the Fed hike rates for the first time in nearly a decade and issue a forward path which included another 4 hikes for 2016. The main local event was the NZ Q3 GDP release, which marginally beat the market’s expectations. The numbers included encouraging strength in services and investment demand. Softer U.S. data releases and improving ANZ Business Confidence data helped support the NZD into the end of the week. Immigration data released yesterday showed immigration inflows which continue to hit record highs. The local data calendar is largely empty over the holiday break, although November trade data will be released on Wednesday this week. The 2016 NZ calendar begins with November building consents on January 11. Market liquidity and commodity/risk sentiment will be the primary drivers of NZD moves in the New Year.

United States
Sentiment for the USD last week was dominated by the FOMC monetary policy meeting which saw the Fed raise interest rates by 25 bps. This was the first U.S. rate hike seen since June 2006. A further four hikes were indicated for next year, although Fed chair Yellen indicated the hikes would remain data dependant. Data released last week was mixed. It included a core inflation rate which printed in line with the FOMC’s 2% target, solid housing starts and building permit data, and a miss in the services sector PMI data amongst others. Tonight sees the release of the Richmond Fed manufacturing data and existing home sales numbers. The third read of the Q3 GDP is unlikely to elicit a significant market response. Christmas Eve day will see the release of durable goods data and the Fed’s favored inflation measure (PCE inflation); this is expected to remain subdued at 1.3% y/y for the core index.

Europe
The EUR has firmed marginally in trade this week after easing late last week post the U.S. FOMC meeting. Data releases were mainly second tier and took a back seat to the predominant USD sentiment, which took a boost after the Fed surprised many in the market by pointing to a further four rate hikes in 2016. European industrial production data was strong and rose at double the rate forecast in October. Other data was mixed and included a rise in the German/European ZEW confidence data and a slight miss in the French/German PMI data. Misses in the U.S. PMI data on Friday helped the Euro lift from its weekly lows. The market chose to ignore the deadlock in the Spanish elections ,which sees no clear proposition for the formation of a coalition government. The local data calendar is relatively light weight for the euro-area over the holiday period.

United Kingdom
The GBP continues to ebb lower in trade this week, despite generally solid local data-flow last week.The data included labour market numbers that showed the unemployment rate at near 10-year lows and retail sales data which exhibits annual growth of 5%. Concerns over the inflation outlook and wages growth were brought into focus after dovish comments from BOE board members last week. Weak U.K. public finances are also in focus presently, data released later today is expected to show a further increase in public borrowing. U.K. GDP and current account data will feature tomorrow. Of note is the fact that the U.K. current account deficit is currently one of the widest in the developed world. Data in the New Year prior to our next update includes consumer credit, trade and mortgage approvals data.

Japan
The JPY has firmed in recent trade on safe-haven demand and after the BOJ announced a surprise shift in its asset-buying program on Friday. The program is to now  include purchasing new exchange-traded funds, longer-dated bonds and more risky assets. The moves are further measures which are aimed at addressing the BOJ’s inflation problem, although on current trends the BOJ likely has little chance of meeting its 2% target in the next couple of years. The latest Tankan survey last week showed that Japanese firms expect prices to rise just 1% next year. Concerns over the credibility of Governor Kuroda’s policy response and difficulty in implementing effective larger asset purchases to address the persistent inflation problem were key factors behind the Yen surge. The holiday period sees the release of inflation data on Christmas day and retail sales/industrial production data on Monday next week.

Canada
The CAD continues to trade near its multi-year lows this week as the continued weak sentiment shown towards countries with a heavy oil exposure shows little signs of abating. Brent crude oil prices have traded to 11-year lows this week on the back of continued supply concerns. Data released on Friday showed an uptick in the U.S. weekly oil rig count. This came on the back of data earlier in the week which showed U.S. commercial crude inventories rising to their highest levels in more than 80 years. Canadian inflation and wholesale trade data on Friday missed the market’s expectations. The data combined with dovish comments from the BOC Governor Poloz (over the Q4 growth outlook) to add to the negative sentiment. Local data over the holiday break includes the retail sales and GDP releases on Christmas Eve, and the RBC manufacturing PMI release early in the New Year. Energy market developments will continue to be the key driver however.
 
 

Economies of Note: 18th Dec 2015

Written by Sam Coxhead on December 18th, 2015.      0 comments

2.40PM (NZT)

Australia

A relatively featureless data schedule in Australia this week has meant that moves in the AUD have been dictated by offshore events. The decision by the Fed to move interest rates up (+0.25%) for the first time in nearly a decade was widely anticipated, although the USD has garnered support after the projected future U.S. interest rate path was not lowered as much as many had anticipated. The AUD has come under further pressure in trade overnight (in what is becoming a very familiar theme) on the back of sharp falls again seen in key commodities and commodity based currencies. Earlier in the week the AUD gained some brief respite after the release of the RBA minutes which delivered a slightly more positive assessment of the Australian economy than that expected. The minutes noted an improving growth outlook and trend in the labour market, and the generally positive flow of recent domestic data. It is a quiet lead up to the Xmas break in Australia, this will once again mean the AUD will take its cue from offshore developments.
 
New Zealand
The NZD took the Fed’s decision to raise rates in its stride this week, although experienced significant volatility in the thinning holiday markets over the announcement. The USD has been on the front foot since the announcement, particularly so overnight which has once again seen the commodity currencies bear the brunt of the losses. The latest GDT dairy auction release on Wednesday morning was disappointing after the GDT-TWI rose by only 1.9%, much less than the 6% gain implied by the NZX futures pricing leading into the auction. The NZ Q3 current account data that was released a few hours later came in slightly better than expectations but failed to ignite much interest. NZ Q3 GDP data released yesterday beat the market expectations (actual 0.9% q/q), although the downwards revision to the Q2 data meant the y/y growth met the consensus forecasts.The market reaction was naturally muted especially when viewed against the earlier volatility seen over the FOMC announcement. Direction for the NZD next week will come from offshore, the only local data of note is the November trade data release on Wednesday, this is likely to garner little market interest.
 
United States
The widely anticipated FOMC monetary policy meeting has dominated sentiment held towards the USD this week. The U.S. Fed raised rates by 0.25% at the meeting as expected by the majority of the market. This marks the first time since June 2006 that the Fed has raised the Federal-Funds interest rate target. The Fed did not shift the “dot plot” of rate expectations much lower however, this came as a surprise to many in the market. Especially to those who had expected a lower projected path for rates, given the recent market volatility and uncertainty evident in the high yield junk bond and energy markets. The path called for another four 0.25% hikes next year, on the way to “normal” rates of around 3.50%. Fed chair Yellen noted in a move aimed at calming nervous markets that any moves would be “data dependent”. Data releases during the week included slightly better than expected inflation data for November which showed core inflation in line with the FOMC’s 2% target and surveyed inflation expectations holding steady. Housing starts and building permits data posted solid gains in November, although the industrial production data for the same month missed expectations. Other U.S data was mixed and included deterioration in the Philly Fed manufacturing survey and improvement in weekly initial jobless claims. Highlights for next week include U.S. Q3 GDP and durable goods data.
 
United Kingdom
The GBP/USD trades near its lows for the week in trade presently, on the back of solid USD demand post the U.S. FOMC meeting. Data out of the U.K. during the week was upbeat but failed to make an impact on the strong USD sentiment, particularly after the Fed indicated expectations of another four rates hikes for 2016. The week started with U.K. inflation data which marginally surpassed expectations. ONS house price data released at the same time posted a 7% gain y/y. Strong labour market data which saw the unemployment rate fall to near 10-year lows of 5.2% failed to stem the tide of GBP selling. Dovish comments from the BOE Governor Carney and member Shafik (who noted the need for stronger wage growth) helped contribute to the weak GBP sentiment. Retail sales data released overnight which easily beat expectations failed to change the proceedings. Annual total retail sales growth is now 5% and reflects the strong domestic demand and momentum in economic activity. Next week will see the release of Q3 U.K. GDP data on Wednesday.
 
Europe
USD sentiment has been the primary driver of trade in the Euro this week. This sentiment took a boost yesterday after the U.S. FOMC meeting. When despite raising rates by 25 bps as expected, contained some surprises after the Fed chose to maintain its expectation that it will raise rates by a further 1% in 2016 (four 25 bps hikes). Data released out of Europe this week included firm European industrial production data which rose at double the rate forecasted in October. German ZEW confidence data posted rises for both the current and expectations components. The euro area-wide number also firmed and indicates a growing confidence in the sustainability of the unfolding euro area recovery. The German IFO survey of business sentiment was marginally disappointing however. The French and German PMI data also slightly disappointed, although the absolute levels remained sound overall. Euro area inflation data was better than expected, albeit current inflation levels in Europe remain a long way off those targeted by the ECB.
 
Japan
The JPY is ending the week on a soft tone after its fortunes have reversed during the course of the week. This was particularly so following the FOMC yesterday, which saw the Fed raise interest rates and surprise many in the market by sticking with its belief that it can raise rates a further four times in 2016. Data released in Japan included the Tankan survey on Monday which showed pessimism over the outlook, but a generally positive theme of current conditions. Trade data released on Thursday whilst better than expectations. was driven on the back of a slump in imports and these outweighed the decline seen in exports. Focus for the JPY now sits squarely on today’s BOJ monetary policy meeting where the vast majority of economists expect no further expansion in the BOJ asset-buying program.  Governor Kuroda’s comments on the inflation outlook will be keenly awaited.
 
Canada
Things have gone from bad to worse for the CAD this week after it once again lurched lower in trade overnight on the back of the now very familiar story of depressed oil pricing. Oil prices have once again returned to near their lows in recent trade on the back of fresh data which showed a surprise build in U.S. inventories on Thursday. Natural gas prices were also under additional pressure on the back of data which showed total U.S. storage at levels some 14% higher than this time last year as warm pre-winter weather in the U.S. significantly reduces demand for heating fuel. Canadian inflation data tonight is the immediate focus for the CAD, this will likely take a back seat however to the market’s obsession with energy market pricing.
 

 

Weekly Update - Market jitters as the Fed takes center stage

Written by Sam Coxhead on December 15th, 2015.      0 comments

Market Overview:

The U.S. Federal Reserve is set to lift interest rates for the first time in over nine years on Thursday. This comes after it has kept interest rates between zero and 0.25% since December 2008. The steady U.S. growth of recent years and a strong labour market will allow the hiking cycle to begin this week, although the real interest will surround the indications given on how quickly the Fed will follow up with additional rate hikes in 2016. The continued rout of the energy markets and recent cracks appearing in the high yield junk bond will give the Fed chair Yellen cause for concern when moving this week. These concerns should likely see her express caution in signalling her approach for further moves as she attempts to reduce the likelihood of inducing further market volatility in the weeks after the announcement.

Australia

The AUD eased lower in trade late last week as the market chose to overlook Thursday’s solid Australian employment report in favour of selling on the back of the continued weakness seen in commodity prices and falling international equities. The health of the high yield U.S. junk bond market which has a large exposure to the energy sector weighed on sentiment towards U.S. equities in trade on Friday. The AUD lifted in early trade yesterday after the release of solid Chinese retail sales and industrial production data over the weekend. The gains were initially short lived however, before the strength renewed in trade overnight. This strength came on the back of more generalised USD selling prior to this week’s Fed interest rate decision. Investors generally expect the Fed to deliver a cautious forward statement, given the elevated market concerns around the vulnerabilities of emerging markets and the U.S. energy sector to an overly aggressive U.S. rate tightening path. Immediate focus for the AUD will be this afternoons RBA minutes.

New Zealand

The NZD has rallied well in trade overnight after starting the week on a soft footing. Initially it sunk on the back of further commodity currency selling and weakness in U.S. equities (risk-off selling). Concerns over the health of the high yield junk bond market which has a heavy exposure to the energy sector helped contribute to the weakness seen in U.S. equities on Friday. These concerns amongst others have many fearing the fallout that may result from a Fed rate hike this week. These fears have compounded given the current vulnerability of the energy sector. The USD eased in trade overnight ahead of the Fed decision, investors are expecting the hike to be accompanying by a cautious forward statement given the current volatility seen in international markets. Immediate focus for the NZD will be the overnight GDT dairy auction, and NZ Q3 current account data tomorrow. The FOMC decision and the NZ Q3 GDP release on Thursday will set the tone for trade into the end of the week.

United States

The USD has had a quiet start to the week into the lead up to this Thursday’s key FOMC interest rate meeting. Last week was a relatively quiet one for the USD which saw if drift lower as the week progressed. Data releases on Friday eclipsed the largely soft second tier U.S. releases of earlier in the week. November retail sales rose 0.2%, whilst the important retail control reading (which feeds into GDP) beat market expectations. The University of Michigan consumer sentiment number was broadly in line with expectations, producer price data which beat expectations failed to excite. However, the data took a back seat to headlines out of China over the release of a new currency index which fuelled expectations that the Yuan may weaken as Chinese reserves are re-weighted, this led to buying of EUR’s, GBP and the JPY. Immediate focus for the USD now turns to tonight’s U.S. inflation data release. This comes before the key FOMC interest rate meeting on Thursday, where expectations remain high for the first interest rate hike in nearly a decade. The accompanying statement will be closely monitored especially in light of the crack’s appearing in the U.S. high yield junk bond market and the concerns that exist over the impact that rate hikes may have on emerging market economies and U.S. equities.

Europe

It has been a quiet start for the Euro this week in what is likely to be a week which will see the EUR moves dictated by events in the U.S. German inflation data released on Friday met the market’s expectations, whilst the overnight release of European industrial production saw an expansion at double the rate of that expected by the market. The final read of Italian inflation also beat expectations, although all the releases took a back seat to the general USD sentiment. German IFO confidence data on Thursday is the main local event of note for the EUR this week. USD sentiment post the FOMC meeting on Thursday will be the key driver for EUR pricing later in the week, expectations are for a Fed rate hike although interest will also centre on the forward outlook especially given the recent declines seen in the global equity bourses.

United Kingdom

The GBP has eased in trade early this week, after posting solid gains into the end of last week. These gains were helped to some extent by speculation on Friday that the new Chinese trade weighted currency index will lead to an increase in Chinese reserves allocated to the GBP. Last week’s BOE meeting was seen to provide little in the way of fresh news to move the market. Dovish comments last night from BOE member Shafik has placed the GBP under pressure in recent hours. Her comments included ones which noted the need for a pick-up in wage growth in order for inflation to recover towards the BOE’s 2% inflation target. This is seen as a necessary requirement before the BOE would be seen to be seriously considering raising rates. It should be a busy week for the GBP this week, starting with the release of inflation data tonight before the latest employment data tomorrow. November U.K. retail sales on Thursday will follow on from the earlier all important U.S. FOMC interest rate meeting.

Japan

The JPY has continued to firm in recent trade on the back of safe-haven demand and the solid round of local data releases seen last week. Safe haven JPY demand spiked in trade on Friday on the back of the weakness seen in international equities. The recent heavy declines seen in the commodity space spread to the wider equities market last week, concerns remain high over the fall-out that the sector may have on the wider generalized economies. The Japanese Tankan survey released yesterday showed a general theme of better than expected current conditions and pessimism regarding the outlook. The focus for the remainder of the week will be dominated by the BOJ monetary policy meeting on Friday; yesterday’s Tankan survey contained very little good news for the BOJ’s current low inflation nemesis.

Canada

The story for the CAD this week continues to be a familiar one as it struggles under the weight of a depressed oil price which has traded to fresh cyclical lows in trade overnight (WTI lows $US 34.50). News from the International Energy Agency which said that it expected the current glut in oil supply to continue until late 2016 helped contribute to the latest oil price falls.  Energy market developments will continue to be the primary driver of the CAD in trade this week. Canadian inflation data on Friday will be of interest but will likely quickly take a back seat to the high CAD$/oil price trading correlation.

Major Announcements last week:

  • Japanese Q3 GDP 0.3% q/q vs. 0.0% exp.
  • Chinese November Trade balance $54.10B vs. $63.30B exp.
  • UK Industrial Production (Oct. 1.7% y/y vs. 1.2% exp.)
  • Chinese Inflation (Nov. 1.5% y/y vs. 1.4% exp.)
  • NZ cash rate 2.5%, 25 bps cut as expected.
  • Australian Employment change (Nov. +71.4k vs. -10k exp.)
  • Australian Unemployment rate (Nov. 5.8% vs. 6.0% exp.)
  • UK cash rate 0.5%, unchanged as exp.
  • US Retail Sales (Nov. 0.2% m/m vs. 0.3% exp.)
  • Chinese Retail Sales (Nov. 11.2% y/y vs. 11.1% exp.)
Topics: FED FX Markets Foreign Exchange
 

Economies of Note - 11th December

Written by Edited by Ian Dobbs on December 11th, 2015.      0 comments

2:30pm(NZT)
Australia
The AUD has had a solid finish to the week after yesterday’s bumper jobs report. Data for Australian November employment was exceptionally strong after the number saw a surge of 71.4k roles for the month, the majority of which came through the addition of full-time jobs. The unemployment rate fell further to 5.8% against the market expectation of a small uptick. The data follows on from October’s strong result and shows an improving trend in the labour market, although market analysts are again exercising some caution to the data given the recent data sampling issues. Earlier in the week saw the release of firm ANZ job ads and NAB business confidence data. Little market reaction was seen after weak Chinese November trade data on Tuesday. Focus now turns to the release of the RBA minutes on Tuesday in what is otherwise a quiet local data week. Commodity pricing will continue to be a primary driver of sentiment for the AUD.


New Zealand
The NZD sits near the upper end of its weekly range presently after the RBNZ delivered a much anticipated rate cut yesterday (to 2.5%). The reaction of the currency to the move will be a source of frustration for the RBNZ as the NZ TWI now sits some 6% above the levels projected by the RBNZ for Q1 2016. After initially dipping on the statement, the market surged after the RBNZ left their 90 bank bill forecast unchanged and indicated that they would be reluctant to cut the cash rate any further. Slow consumer price inflation dominated the reasoning behind the move. Earlier in the week the market overlooked solid Q3 manufacturing data in favour of looking forward to yesterday’s central bank meeting. Events to watch for next week include the next GDT dairy price index release on Wednesday morning and the NZ Q3 GDP data release the following day. Weak commodity prices should continue to have some influence although yesterday’s market reaction to the RBNZ highlights the heavy influence of market positioning and low liquidity as we draw closer to year’s end.
 

United States
It has been a relatively quiet week for the USD this week ahead of tonight’s data schedule. The USD has eased against most of the key majors after Friday’s solid U.S. non-farm payrolls employment report. Data taken last week prior to this release and the ECB meeting, showed extended speculative positioning (+USD). Reductions in this positioning are likely to have been the main contributor to the declines observed in the USD since. Data releases this week included an easing in the JOLTs job openings, NFIB small business optimism, and wholesale inventories, although all failed to garner market interest. Focus for the USD will now turn to tonight’s retail sales release, other releases include producer price data and Michigan consumer sentiment. Next week’s release schedule will be dominated by U.S. inflation data and the FOMC meeting. Current expectations place a ~80% probability of a hike in rates by the U.S. Fed.
 

United Kingdom
The GBP has posted moderate gains this week, helped mid week by a firming Euro. Better than expected U.K. industrial production data was released on Tuesday and included positive revisions to the prior month’s numbers. The manufacturing production numbers were soft however. Halifax house prices dipped for the latest month, although were still seen to be posting solid annual gains of 9%. The focus for the week was the overnight BOE interest rate meeting which largely turned out to be a non-event as the U.K. central bank was seen sticking to the script of a lack in urgency in the need to raise rates in the current low inflationary environment (the current cash rate is 0.5%). U.K. inflation data on Tuesday and employment numbers on Wednesday dominate the landscape next week. Retail sales data on Thursday will also be of some interest.
 

Europe
The Euro has consolidated its gains during trade this week in what has been a week of largely non plus data. Sentiment towards the EUR continues to be dominated by last week’s ECB meeting which underwhelmed on the market’s expectations of significant additional monetary stimulus. Comments from the Austrian and German central bank leaders this week both alluded to the unjustifiably high market ECB stimulus expectations. Data released during the week included German industrial production data which rose less than the market consensus. Euro-zone Q3 GDP showed recovering domestic demand after the data met expectations, although the details showed weak household consumption and capital investment components. Later today will see the release of German inflation data (likely of limited impact). Next week’s data releases include the German ZEW and IFO sentiment/business climate indicators, euro-zone inflation data and various euro wide manufacturing/service purchasing manager index releases.
 

Japan
The JPY has had a strong week this week firming to highs against the USD not seen in over a month after a solid round of Japanese data releases. These were led by the final read of the Q3 GDP on Tuesday which was seen rising 0.3% q/q, much better than the flat expectations. Misses in the consumption and business spending components took some gloss off the numbers however. Surging machinery orders data released on Wednesday has added to the upside momentum. Focus for next week will include industrial production data due for release on Monday, trade data on Thursday and most importantly the BOJ monetary policy meeting on Friday. This will be an interesting meeting as pressure mounts on the BOJ to provide additional stimulus, especially in light of the recent comments from Governor Kuroda which have indicated an unwillingness to extend the current asset purchase programme further.
 

Canada
There has been no reprieve for the CAD this week as it struggles under the weight of a depressed oil price which sits on its lows below $US 37 a barrel (WTI). The market continues to grapple with a supply overhang which is unlikely to abate after OPEC’s decision on Friday to maintain current production levels. Concern is also high over the possibility of U.S. crude storage becoming full which could lead to the necessity of large volumes needing to be dumped on the market. Somewhat predictably the Canadian data has taken a back seat to the oil price led sentiment towards CAD$ pricing this week. However, the data did include firm housing start and building permits numbers. The New Housing price index was also seen firming overnight. Comments from the BOC Governor Poloz this week indicated a preparedness from the BOC for a move in reducing rates from the current 0.25% level to -0.5% if necessary. Pressures for additional rate cuts to the two seen this year are mounting in 2016. Canadian inflation numbers on Friday are the only data of note next week.
 
 

FX Update : RBNZ rate cut expectations grow

Written by Edited by Ian Dobbs on December 8th, 2015.      0 comments

2:30pm(NZT)
Market Overview:
Expectations of a rate cut this Thursday by the RBNZ heightened yesterday after the market took an increasingly pessimistic view on the global commodity price outlook. The market also remains concerned over the relatively elevated level of the currency in relation to RBNZ forecasts. The currency level remains a key consideration for the RBNZ and recent trading has the NZ-TWI well above those RBNZ forecasts. In the U.S. a move in the opposite direction looks a done deal later this month after the release of another solid U.S. non-farm payrolls employment report on Friday. Odds of a hike now sit at ~74% with a recent Bloomberg survey showing 68 of 73 economists polled expecting a rate hike in what will be the first monetary policy tightening in the U.S. since the 2004-2008 tightening cycle. These factors point towards continued volatility in the coming weeks through the end of year period.
 

Australia
The AUD has eased in trade overnight and sits well off its highs seen on Saturday morning which were set after the release of the U.S. non-farm payrolls employment report. Renewed commodity price weakness in trade this week has been behind the souring in sentiment seen towards the AUD. A decision by OPEC on Friday to maintain current oil production levels has helped the price of oil plumb fresh six and a half year lows in trade overnight. Australian data was largely positive last week and was led by a firm Q3 GDP data release on Wednesday. October retail sales was seen matching market expectations on Friday and hence failed to excite. Data released yesterday showed ANZ job ads rising 1.3% m/m in November. The outlook for the AUD this week will depend on Thursday’s November employment data release and movements in the key underlying commodities. Westpac consumer confidence and home lending data on Wednesday also feature. NAB business confidence data will be released later today.


New Zealand
The NZD has eased off highs ahead of .6790 (set on Saturday morning) at the start of the week. Extended positioning saw the USD sell-off at the week’s end after the solid U.S. non-farm payrolls employment report, a report which has cemented markets expectations of a Fed rate hike on December 17. A combination of factors including firm ANZ business confidence and an uptick in dairy prices helped the NZD firm during the week, although the story was more one of weaker U.S. data and a surging Euro post the delivery of an underwhelming ECB package. Commodity prices have been under intense pressure this week (NZD negative) and were not helped by OPEC’s decision on Friday to maintain current oil production levels. This has helped the Bloomberg commodity index crash to new 16 year lows overnight, some 22% below its 2009 lows. Other critical focus for the week is Thursday’s RBNZ interest rate decision where expectations have now moved to 65% in favour of a rate cut after yesterday’s fresh commodity price meltdown.
 
 
United States
Data out of the U.S. on Friday continued to raise the spectre of a lift in rates by the U.S. Fed on December 17. The key November non-farm payrolls employment report printed broadly in-line with market expectations, after the gain of 211k jobs were posted in the month. The unemployment rate was unchanged at 5%, although the underemployment rate ticked marginally higher and re-enforces the message of a gradual tightening path. The result and revisions to the prior month puts the 3-month average gain in payrolls at 215k. Comments from Fed officials Harker and Bullard backed those of Janet Yellen’s in maintaining expectations of an imminent U.S. rate lift off. It is a relatively quiet week on the data front in the U.S. until Friday where the raft of data releases includes retail sales, Michigan consumer sentiment and producer price data.


United Kingdom
It has been a quiet start to the week for the GBP as the market focus chooses to concentrate on the BOE interest rate meeting on Thursday. Monetary policy settings are not expected to change at the meeting, although the market will closely monitor for any signs that the minutes may show of risks to the BOE normalising sooner than expectations. Mixed U.K. data last week meant the GBP was unable to enjoy any further gains on the back of the USD repositioning post the U.S. non-farm payrolls employment report on Friday. U.K. industrial and manufacturing production data is set for release tonight, although should have a relatively low impact ahead of Thursday’s BOE meeting.
 

Europe
The Euro continues to sit at levels well above those seen pre the ECB meeting in trade today. The gains have moderated somewhat from those seen when the market rushed to cover Euro shorts last week following the delivery of a stimulus package that largely failed to meet the high expectations. Comments from unnamed ECB sources have criticised ECB president Draghi for trying to pressure the governing council into taking bigger action beyond those measures announced, and for raising market expectations of expanded stimulus too high. Data released overnight had little impact after German industrial production was seen rising less than expectations. Last week saw the German unemployment rate reach fresh lows of 6.3%, whilst German inflation data met market expectations. Data this week includes the second read of the euro-zone Q3 GDP tonight, German trade data tomorrow and inflation data on Friday will be of limited interest.
 

Japan
Trade in the JPY has been relatively well contained in recent days as the market has focussed on the more pressing issues of U.S. employment, ECB stimulus, and energy market developments. Recent comments from the BOJ Governor Kuroda included one which said that there was no need for Japan to adopt negative deposit rates. This comment indicates that pressure is mounting on the BOJ to provide additional stimulus, although indications point to the BOJ having little enthusiasm for extending its huge asset purchase programme at this stage. The deflationary effects of the weakness seen in the oil and energy markets will continue to place pressure on the Japanese central bank to achieve the targeted 2% inflation rate. It is a relatively light data calendar out of Japan this week with just the Q3 GDP data of any real note.
 

Canada
The story for the CAD continues to deteriorate this week as oil prices were seen plumbing fresh six and a half year lows overnight (WTI $37.80 last). The fresh weakness in oil prices (and the CAD) comes after Friday’s decision by the OPEC oil cartel to maintain oil production at current levels and leave the current production ceiling at 30 million barrels per day. Difficulty in enforcing quotas has seen current production levels run at more like 32 million barrels a day however, and the outlook is even more clouded with the expectation that Iran will soon join the exporting production ranks. Canadian employment data released on Friday did the CAD little favour after the data revealed the loss of 35.7 k jobs, much higher than expectations. The unemployment rate at 7.1% was also worse than expectations.  The October trade data also disappointed as exports declined for the third straight month, the Ivey purchasing manager’s report was strong however, although provided little reprieve as CAD investors continue to focus on the dour energy market outlook.


Major Announcements last week: (Tuesday only)
  • NZ Q3 terms of trade -3.7%
  • NZ GDT dairy price index +3.6%
  • Australian building permits (Oct. +3.9% m/m, vs. -2.3% exp.)
  • Australian cash rate, unchanged at 2.0%
  • German unemployment rate (Nov. 6.3%, vs. 6.4% exp.)
  • U.K. Markit manufacturing PMI (Nov. 52.7, vs. 53.6 exp.)
  • US ISM manufacturing PMI (Nov. 48.6, vs. 50.3 exp.)
  • Australian Q3 GDP (0.9%, vs. 0.8% exp.)
  • Eurozone core inflation (0.9% y/y, vs. 1.0% exp.)
  • US ISM non-manufacturing PMI (Nov. 55.9, vs. 58.0 exp.)
  • Australian retail sales (Oct 0.5% m/m, on exp.)
  • US Non-farm payrolls (Nov. 211k, vs. 200k exp.)
  • Canadian employment (Nov. -35.7k, vs. -10k exp.)
 

Economies of Note - 4th December

Written by Edited by Ian Dobbs on December 4th, 2015.      0 comments

1:45pm(NZT)
Australia
The AUD is trading firmly today after having posted solid gains during the week on the back of largely better than expected local data and an overall weaker USD. Australian private sector credit and Q3 company profit data released on Monday both exceeded expectations. However, both took a back seat to the key RBA cash rate announcement and Q3 GDP data released later in the week. The RBA kept the cash rate unchanged at 2.0% on Tuesday. This was unanimously expected, and they noted an improved economy whilst leaving the door open for further easing should it be required.  Worse than expected Q3 current account data released the same day failed to make an impression. Q3 GDP data released on Wednesday exceeded market expectations rising 0.9%, the data was helped by strong export numbers. Some gloss was taken off the release by the declines observed in business investment and domestic demand. A deterioration in the October trade balance data seen yesterday has failed to elicit any excitement. Immediate focus for the AUD now turns to retail sales data this afternoon before the release of U.S. employment data later today and Australian employment data next Thursday.


New Zealand
The NZD has had a solid week after breaking through the upper end (.6600) of its recent trading range mid week. This break came on the back of broad based USD weakness. This was in part induced by the release of weaker than expected ISM manufacturing data ,which fell to levels not seen since 2009. ANZ business confidence and October building consent data released at the start of the week both surpassed expectations, and this helped the NZD start the week on a solid footing. The latest GDT dairy auction saw a lift of 3.6% in the GDT-TWI index which was marginally less than expectations. The 3.7% decline in the NZ Q3 terms of trade and weaker than expected building volume data failed to dent the firm trading tone. The NZD has finished the week strongly after the Euro soared. This came as extended “short EUR positioning” was covered after the ECB delivered an underwhelming stimulus expansion package in trade overnight. Next week’s focus will turn to the RBNZ cash rate announcement on Thursday. The market is evenly balanced on the prospect of a cut to the current 2.75% cash rate. in the meantime the immediate attention for today will be tonight’s U.S. employment data release.
 

United States
The USD has had a poor finish to the week after it dropped ~2.8% (DXY index) in trade overnight. The losses occurred after weaker U.S. data and extended long USD positioning combined with a stimulus expansion package from the ECB which failed to satiate the market’s expectations. U.S. non-manufacturing data released overnight, whilst still indicative of a solid pace in activity in the non-manufacturing sector, failed to meet the market’s lofty expectations. Earlier in the week the manufacturing print missed expectations by a large margin, falling to levels not seen since 2009. Fed chair Janet Yellen’s comments during the week maintained the expectations for a Fed lift-off on December 17. She raised concerns over potential delays in rate hikes contributing to more abrupt tightening down the track if Fed targets are overshot. Further data misses included a disappointment in the Chicago PMI and pending home sales data. The ADP jobs report, NY ISM and factory orders releases all exceeded expectations however. Focus now turns to the November non-farm payrolls employment report tonight, market consensus is for a gain of 200k jobs and steady 5.0% unemployment rate.
 

United Kingdom
The GBP has experienced a strong finish to the week (after earlier losses), mostly on the back of the plunge seen in the USD and strong ECB inspired EUR rally. U.K. data released overnight also helped after the services PMI was seen exceeding expectations. Earlier week mortgage approvals data for October improved on the month prior, whilst M4 money supply and lending secured against dwellings continued to show strong gains. The easing seen in the manufacturing PMI on the month prior reflected the weak global manufacturing environment experienced currently by many countries abroad, although the relative strength of the GBP was also seen to be impacting. Immediate outlook for the GBP will come from the U.S. employment data tonight, attention will then turn to next week’s BOE interest rate decision next Thursday.
 

Europe
The Euro has risen dramatically in trade overnight after extended “Euro short positioning” was seen covering post the ECB monetary policy meeting. Expectations of an expansion in the size of the current EUR 60Bn monthly bond buying programme to around EUR 75Bn per month failed to materialize. The ECB instead opted for an extension of the programme by 6 months (to March 2017) and widening of the pool of bonds that they would purchase to include regional and local bonds. The deposit rate was cut to -0.3% (from -0.2%), although analysts had expected a deeper cut to -0.4%. Data releases this week took a back seat to the overnight meeting. German inflation data was seen printing on expectations, whilst mild improvements were noted in euro area activity and labour market data. The German unemployment rate declined to a new low of 6.3%, whilst the euro area core inflation rate missed expectations by declining to just 0.9% y/y in November. U.S. employment data tonight now provides the immediate focus. Releases next week include German and French inflation and trade prints.
 

Japan
The JPY has taken a back seat this week to the movements in the Euro and USD as the raft of second tier data releases out of Japan failed to provide any real impetus. The major move this week for the Yen has come overnight which occurred after the USD index fell ~ 2.8%. USD losses were largely made on the back of Euro gains post the delivery of an underwhelming stimulus package by the ECB. Local releases included weak housing starts and the lower than expected industrial production data releases on Monday. Retail sales data released the same day exceeded expectations, whilst the Nikkei Services PMI release yesterday deteriorated from the month prior. Focus will now turn to the U.S. employment data tonight and the Japanese Q3 GDP release next Wednesday.
 

Canada
The CAD has stayed relatively well contained this week despite a raft of OPEC oil related headlights and local data releases. Moderate weakness was seen after the Q3 GDP release. The quarterly data met expectations, although the monthly 0.5% decline provided a negative surprise and was led by a contraction in oil and gas activities. The BOC left interest rates unchanged at 0.5% as expected and cited growth dynamics which were broadly in line with their October outlook. The RBC Manufacturing PMI improved from the month prior, but failed to provide much excitement. Focus from here will turn to the release of tonight’s Canadian and U.S. employment data, the Ivey PMI and any further headlines from the OPEC meeting.
 
 

FX Update: ECB meeting on Thursday in the spotlight

Written by Edited by Ian Dobbs on December 1st, 2015.      0 comments

4:00pm(NZT)
Market Overview:
It will be a busy week for forex markets this week despite a quiet start to the week, as the markets gear up for the ECB’s policy decision on Thursday. The Euro has traded heavily over recent weeks. This is in anticipation of an expansion and/or extension to the current EUR 60Bn per month bond buying programme, which for now is set to continue until September 2016. A failure to satiate market expectations could therefore lead to a nasty squeeze higher in the Euro exchange rate. Later today will see the RBA in focus; whilst the meeting is likely to be uneventful (rates to stay at 2.0% after last week’s RBA Governor Stevens comments), the comments which accompany the cash rate announcement will be closely examined. The focus will be on any signs of a change bias given the recent data which has included strong employment and weak capital expenditure numbers. The U.S. employment report on Friday will round out the busy week; where a large downside miss would likely be required to disrupt the FOMC from raising rates later this month.
 

Australia
It has been an innocuous start to the week for the Australian dollar as the market awaits today’s RBA cash rate decision and Australian Q3 GDP data tomorrow. Odds of a cut in rates from the current 2.0% cash rate are low despite last Thursday’s weak Q3 private capital expenditure data (-9.2%) release. Market focus has instead centred on last week’s surprise comments which indicated that the RBA is comfortable with the current cash rate setting and would likely remain in monitor and assessment mode (Governor Stevens words were “chill out”) over the Christmas period. However, the tone of today’s accompanying statement will attract considerable interest. Data released yesterday was mildly positive although elicited little market response. Private sector credit was seen rising 0.7% m/m in October (vs. +0.6% exp.). Q3 company profits rose 1.3% q/q, higher than the 1.1% expectations. October trade data on Thursday and retail sales data on Friday round out what should be a busy week for the AUD. Chinese PMI data due for release this afternoon will also be eyed.


New Zealand
The NZD sits near the upper end of its recent .6500/.6600ish range in recent trade as it followed a firming AUD higher in overnight trade. NZ ANZ business confidence data for November released yesterday was solid after it was seen rising to six month highs at 14.6, well up from the 10.5 print seen last month. October building consents rose 5.1% m/m, a sharp improvement from last month’s revised 5.8% decline and well above the 3.0% expectation. The Q3 terms of trade index showed a larger than expected decline this morning as import prices rose sharply. Next focus for the NZD will be tonight’s release of the GDT dairy price data, where current indications point to a 5% lift in prices. Direction for the remainder of the week will come from offshore, with Thursday’s ECB monetary policy meeting and Friday’s U.S. employment data being amongst the most important events to watch. Next week’s RBNZ decision also looms, market pricing currently indicates a 50/50 chance of a cut to the present 2.75% cash rate. The case for a cut includes low inflation, pressure on the dairy sector and global uncertainty as potential reasons for a move. Built-up housing market pressures and a continued decline in fixed mortgage rates are amongst the key reasons that we consider a cut unlikely.
 

United States
The USD remains well sought after in current trade and near the 5 year highs set in March this year (Dollar index 100.39 highs, ~120.20 last). An empty data calendar on Friday helped bring a quiet finish to the holiday shortened week last week. Little changed in trade overnight despite some weak releases which included a 0.2% m/m gain in October pending home sales data (1.0% exp.) and a decline to 48.7 in the Chicago PMI in November from 56.2 the month prior (54.0 exp.). The subdued volatility of the last few days comes mostly as a result of focus being on Friday’s U.S. Non-farm payrolls employment report and two scheduled appearances by Fed Chair Janet Yellen this week (Thursday and Friday). Only an extremely poor result on Friday would have a chance of scuppering this month’s likely rate hike at the December 17th FOMC meeting. Currently the market pricing apportions around a 70% chance of a hike. Markit/ISM manufacturing and construction spending data is due for release tonight, ADP employment data tomorrow night will also be of some interest.


United Kingdom
The GBP continues to trade with a heavy tone mirroring a heavy Euro, this sees both currencies trading near their recent lows presently. The second estimate of the U.K. Q3 GDP released on Friday met expectations after posting growth of 0.5% q/q and 2.3% y/y. Strength in domestic activity drove the result, notably investment rose 1.3% q/q vs. expectations of a 0.9% rise. In data released overnight U.K. Mortgage approvals for October at 69.6k surpassed last month’s 68.9k print, mortgage lending at GBP 3.6bn was unchanged on the month prior. U.K. consumer credit was a touch weaker than expected at GBP 1.2bn. M4 money supply and lending secured on dwellings continued to show strong gains. The data brings into focus tonight’s BOE Financial Stability report especially given the recent steps which have been taken to reign in the robust U.K. housing market. Manufacturing PMI data is also due for release later today; this is expected to show a continuation in the slowing of activity. The construction and services PMI data releases will follow on Wednesday and Thursday respectively.
 

Europe
The Euro remains heavy in early trade this week as focus on this Thursday’s ECB monetary policy meeting continues to dominate investor sentiment. Expectations of an expansion and/or extension to the current EUR 60Bn per month bond buying programme (currently in place till Sept. 2016) and a cut to the present -0.2% deposit rate are high, although market positioning is well placed for such an outcome. Data released overnight failed to excite after the German November inflation data printed exactly on expectations. The equivalent Italian data disappointed falling 0.5% m/m, which helped served to offset Friday’s better than expected Spanish print. Euro area confidence data also released on Friday showed a lift in the consumer, services and economic indicators and came on the back of a solid German IFO release earlier in the week. Euro area manufacturing PMI data and German unemployment numbers will feature later today before the scheduled release of euro-zone inflation numbers tomorrow. Euro area services PMI and euro-zone retail sales data on Thursday will take a back seat to the all important ECB meeting later in the day.
 

Japan
It has been a slow start to the week for the JPY so far after the market showed little interest in yesterday’s commentary from the BOJ Governor Kuroda and raft of second tier data releases. Governor Kuroda’s comments included one which indicated his belief (again) that extra monetary easing wouldn’t be required to revive inflation. Inflation data released on Friday showed just a 0.3% rise y/y in October, well below the BOJ’s 2.0% target. Amongst yesterday’s releases was housing starts data which showed a 2.5% y/y slide in October, well below the +2.6% consensus forecast. Vehicle production was seen falling 0.5% y/y (prior -2.6%) whilst preliminary industrial production data for the same month rose 1.4% m/m, less than the 1.8% expectations. Retail sales data showed a 1.1% m/m gain, above the 0.3% rise expected. Direction for the remainder of the week should now come from any safe haven flow before the important U.S. employment data due for release on Friday.
 

Canada
It has been a relatively quiet start to the week for the CAD with any movement again being dictated by gyrations in the oil price. Initial oil price gains from overnight were erased after data which was released in the past few hours showed OPEC oil output rising 130k bpd in November. The OPEC oil cartel meets on Friday, current indications point to there being no change in output of the (commonly flouted) production quotas. The market showed little interest in the Canadian Q3 Current Account release overnight which showed a small improvement on the prior period’s revised number (-16.21B vs. -16.57B and -15.1B exp.). Immediate focus for the CAD now turns to today’s Canadian Q3 GDP data and the later RBC manufacturing PMI release. The BOC interest rate decision on Thursday will be followed by market moving Canadian and U.S. employment data and the Ivey PMI on Friday.
 

Major Announcements last week: (Tuesday only)
  • German Q3 GDP 1.8% y/y, on exp.
  • German IFO 109.0 vs. 108.2 exp.
  • US Q3 GDP 2.1% ann. vs 2.0% exp.
  • US Consumer confidence 90.4 vs. 99.5 exp.
  • US Durable goods orders (Oct. 3.0% vs. 1.5% exp.)
  • US Markit PMI composite (Nov. 56.1, 55.0 prior).
  • NZ Trade balance (Oct. -3.24Bn vs. -3.37Bn exp.)
  • Australian Q3 CAPEX -9.2% vs. -4.4% prior.
  • UK Q3 GDP 2.3% y/y on exp.
 

Economies of Note - 27th November

Written by Ian Dobbs on November 27th, 2015.      0 comments

2:15pm(NZT)
Australia
The Australian dollar overcame a poor start trading to highs not seen for over a month this week. Commodity price declines and concerns over a China slowdown dominated sentiment towards the AUD at the start of the week. The construction work done release on Wednesday failed to excite after it missed the -2.1% expectations, falling 3.6% in Q3. The more important private capital expenditure data release yesterday placed the AUD under pressure after it missed expectations by a wide margin. It fell 9.2% in Q3 (-3.0% exp.), but estimates for next year’s spending which were slightly better than expectations at $120.4 billion helped minimise the fallout. Mining investment fell 10.4% in the quarter and 29.6% during the year. The expectation for a transition to non-mining investment failed to materialize after it was seen falling 6.9% in the quarter and 5.2% during the year. The disappointing numbers are likely to pressure expectations for next  Wednesday’s Q3 Australian GDP release. Other data to be released next week includes private sector credit and HIA new home sales data on Monday, the RBA interest rate decision on Tuesday, October trade data on Thursday, before the busy week is rounded out with October retail sales on Friday.
 

New Zealand
It has been a quiet week for the New Zealand dollar after it was seen consolidating around recent levels, trading with a 1c range (~.6500-.6600). Commodity price declines at the start of the week placed the NZD under some pressure as it fell in line with a lower AUD. Although by week’s end it trades near the upper bound as lack-lustre holiday market trade failed to provide any real follow through, ignoring increased geopolitical tensions in the middle east. Local data flow this week included record immigration numbers for the year to October released on Monday (62,477) and the October trade balance yesterday which printed very close to expectations at -963M for the month. Next week we look forward to ANZ business confidence and building permit data on Monday and the next GDT dairy auction on Wednesday morning.


United States
The USD remains on the front foot this week despite a mixed bag of incoming data during the week. This started with misses in both the Markit Manufacturing PMI (52.6 vs. 53.9 exp.) and existing home sale data (-3.4% m/m vs. -2.3% exp.) on Tuesday morning. The second estimate of U.S. Q3 GDP met expectations at 2.1% q/q (annualized) having been revised up from the 1.5% advance release, although was influenced by inventory accumulation. Consumer confidence was seen slipping to its lowest levels in a year after it fell to 90.4 in November (99.5 exp.). The Richmond Fed index at -3 also failed to meet the expectations. October durable goods data was strong after it rose 3% m/m (1.5% exp.) Whilst the labour market data continued to point to a solid labour market after initial weekly jobless claims fell to 260k against the 270k expectations. The University of Michigan consumer sentiment final read was revised lower to 91.3 from 93.1, although inflation expectations ticked higher. Next week’s highlight will be the release of the critical November Nonfarm payrolls employment data on Friday, manufacturing and services PMI data releases will also feature during the week.


United Kingdom
The GBP has eased this week on the back of Euro weakness in what has been a very quiet week data-wise prior to tonight’s preliminary U.K. Q3 GDP release. BOE Governor Carney’s testimony to the Treasury Select Committee on the Quarterly Inflation Report provided little further insight on near term monetary policy direction. The GBP gained some reprieve after the autumn fiscal update showed higher U.K. growth forecasts. Focus will now turn to the GDP release tonight. Next week’s busy data calendar includes mortgage approval and consumer credit data on Monday, Markit manufacturing PMI data on Tuesday, followed by the construction and services PMI data on Wednesday and Thursday.
 

Europe
The Euro remains pressured this week after comments from ECB vice president Constancio regarding the euro area inflation outlook which have served to reinforce expectations of additional policy accommodation at next week’s ECB meeting. Data releases were mainly positive however and started with an upside surprise to the Euro-zone flash PMIs after the aggregate composite printed at 54.4 (53.9 exp.). The German IFO survey release was strong across the board; the headline business climate index rose to 109.0 in November from 108.2 in October and was driven by a lift in both the current assessment and expectations series. German Q3 GDP data met expectations of +1.8% y/y. Immediate focus now turns to tonight’s low impact consumer confidence and business climate data before next week’s heavy calendar which is dominated by the ECB monetary policy meeting (overnight Thursday). The host of other releases includes amongst others German inflation and unemployment data, euro area manufacturing and service PMI data, and the Euro-zone Q3 GDP release (Friday).
 

Japan
The JPY sits off its lows this week on the back of mid-week safe haven buying after the downing of a Russian jet by Turkish armed forces raised geopolitical tensions in the Middle East. The BOJ monetary policy meeting minutes release on Wednesday failed to add any impetus to the market. BOJ members noted in the minutes that inflation expectations were rising from a long-term perspective. Preliminary November Manufacturing PMI data released the day prior beat expectations after printing at 52.8 (52.1 exp.). Data released today showed an improvement in the unemployment rate to 3.1% in October (from 3.4%), whilst inflation (Ex. food and energy) came in at 0.7% y/y in October, just shy of the 0.8% expectation. Next week will see a raft of low impact releases including housing starts, construction orders, and the Nikkei manufacturing PMI amongst others. Industrial production and retail trade data due for release on Monday may have a more meaningful impact.
 

Canada
Trade in the CAD has been dictated by energy market developments this week, this sees the CAD finish the week higher than levels seen at the start of the week. Initial gains were made after oil prices lifted on the back of statements made by Saudi Arabia which repeated its intention to cooperate with OPEC in order to stabilise oil markets. Further gains were seen on rising geopolitical tensions after oil prices lifted further in response to the downing of a Russian aircraft by Turkish armed forces near the Turkish border. Next week sees a busy Canadian data calendar which includes the BOC interest rate decision (Thursday morning), GDP (Wednesday morning), before the week is rounded off with unemployment and trade data along with the Ivey PMI release on Friday.
 
 

FX Update: The Euro continues to struggle, the AUD out-performs

Written by Edited by Ian Dobbs on November 24th, 2015.      0 comments

3:00pm(NZT)
Market Overview:
The Euro continues to be sold on any rallies in the current environment as investors fully embrace the idea of an imminent easing at next week’s ECB meeting. Notes released last week detailing the recent ECB meeting discussion showed that some committee members were already willing to move and ease policy at the last 22nd October meeting. In contrast last week’s Fed minutes delivered on expectations signalling the real possibility of a rate hike at the next Fed meeting. The AUD was a material out-performer last week amongst the key majors as odds for another rate cut lengthen, even despite continued pressure on key export commodity prices. The inability to break the key 70c level against the USD in recent weeks despite these pressures serves to heighten the chances of the rally extending in the near future.
 

Australia
The Australian dollar has had a poor start to the week which has seen it give up much of the gains it experienced late last week. Concerns over a China slowdown impacting global demand for key commodities saw the AUD come under selling pressure during Asian trade yesterday. Declines in gold, copper, zinc and iron ore led to a lack of demand for the AUD during the session. Private capital expenditure data due for release on Thursday and construction work data on Wednesday are of interest in Australia this week. Immediate focus will turn to the U.S. tonight with the release of preliminary Q3 GDP data, the RBA Governor is also scheduled to speak later today. Key commodity price movements will continue to be an important driver of sentiment.


New Zealand
The New Zealand dollar has started the week by losing ground yesterday. This came after being weighed down by its trans-Tasman counterpart which lost significant ground in Asian trade on the back of declines in the prices of key trading commodities. Intensifying concerns over a China slowdown impacting global demand led to the latest round of commodity price declines. The NZD had a strong finish to the week last week, helped by generalised USD selling and a surge in the NZX dairy futures. NZ migration data released yesterday showed a net gain in migrants from Australia for the first time in 24 years. Total net NZ immigration rose to record 62,477 in the year to October, immigration continues to be a key concern for the strong local housing market. It is a quiet week locally on the data front with only October trade data on Thursday of any note, this will see the NZD take its cue from offshore developments.


United States
The USD remains well supported this week as the market continues to focus on the likelihood of a rate hike at the next FOMC meeting. Comments from Fed officials on Friday reiterated a December hike message. U.S. data released late last week included the Philly Fed survey which at 1.9 (Nov.) was above the -1.0 print expected, the continuing and initial jobless claims numbers both printed close to expectations. Data released overnight missed expectations however. The November Markit Manufacturing PMI fell to 52.6 from 54.1 (53.9 exp.) and October existing home sales fell 3.4% m/m (-2.3% exp.). Immediate focus for the dollar will be tonight’s U.S. Q3 GDP release, the Richmond Fed and consumer confidence data will also be of interest. There is a raft of data scheduled for release tomorrow night including durable goods data, weekly jobless claims, personal income/spending and house price data amongst others.
 

United Kingdom
The GBP has ebbed lower in early trade this week weighed down by a soggy EUR as the market awaits the BOE Governor Carney’s testimony to the U.K. Treasury select committee on the recent inflation report later in the week. U.K. retail sales data released late last week disappointed after it fell 0.6% m/m in October (-0.5% exp.), partially reversing September’s rugby world cup inspired boost. The ex-auto fuel sales number fell by 0.9% m/m against the -0.5% fall expected. Public sector borrowing data released on Friday showed an increase in borrowing requirements. U.K. GDP data on Friday is the only other key release of note this week; this leaves the GBP looking to seek direction from the Euro and key U.S. data, including the important GDP data tonight.
 

Europe
The EUR continues to trade poorly this week after the ECB president Draghi gave a dovish presentation to the European Banking Congress on Friday. This reinforced expectations of an easing of monetary policy at next week’s ECB meeting. Draghi noted that whilst monetary policy to date has been effective in supporting the euro area economy, growth momentum and inflation in the euro area were well below their targets and that the risks to the outlook had deepened. Data released overnight showed a surprise to the upside in the Euro-zone flash PMI’s. The aggregate composite at 54.4 (Nov.) registered its highest level since May 2011. The services sector was seen to be outperforming the manufacturing sector, a theme which also registered in the French and German national data. Immediate attention for the Euro now turns to the release of the German confidence IFO and GDP data later today. The remainder of the week will be relatively quiet on the data front, services sentiment and confidence data due for release on Friday are unlikely to excite.


Japan
The JPY has had a quiet start to the week this week after the BOJ was seen leaving its monetary stimulus unchanged last week at its latest monetary policy meeting. Data which showed Japan entering its second recession since PM Shinzo Abe took office wasn’t enough to alter BOJ Governor Kuroda’s view that the inflationary trend is improving. The central bank said that “inflation expectations appear to be rising on the whole from a somewhat longer-term perspective”. The increase in monetary base stands at 80 trillion yen currently. Approximately 50% of economists still expect the BOJ to add stimulus by April next year however. Manufacturing PMI data due for release this afternoon is the immediate focus now for the yen before the release of the BOJ minutes tomorrow. The week is rounded off with household spending and inflation data on Friday.
 

Canada
The CAD has firmed in trade overnight on the back of a turnaround in oil prices which lifted after Saudi Arabia repeated its intent to cooperate with OPEC in order to stabilise oil markets. Canadian data released on Friday showed September retail sales falling short of expectations after both the headline and ex-autos number fell 0.5%. Cheaper gasoline prices contributed to the result. October headline inflation data printed largely in line with expectations at 1% y/y although the core number of 2.1% y/y marginally exceeded the 2.0% expectations. A quiet week is expected this week with only low impact raw material and industrial product price data scheduled for release on Friday. Energy market developments will therefore be closely followed.


Major Announcements last week: (Tuesday only)
  • Euro core Inflation (Oct. +1.1% y/y vs. +1.0% exp.)
  • U.K. core Inflation (Oct. +1.1% y/y vs. +1.0% exp.)
  • German ZEW current situation (Nov. 54.4)
  • U.S. Inflation ex. food and energy (Oct. 1.9% y/y on exp.)
  • NZ GDT Price Index -7.9%
  • U.K. Retail Sales (Oct 3.8% y/y, vs. +4.2% exp.)
  • U.S. Philly Fed Survey 1.9 vs. -1.0 exp.
  • Canadian core Inflation (Oct. 2.1% y/y vs. 2.0% exp.)
  • Canadian Retail Sales (Sep. -0.5% m/m vs. +0.2% exp.).
 

Economies of Note - 19th November

Written by Ian Dobbs on November 19th, 2015.      0 comments

1:00pm(NZT)
Australia
Data from Australia this week has mostly been a second tier affair and as such it has had little overall impact on the market. For the record, we saw softer than expected new motor vehicle sales figures, while the wage price index came in bang on expectation at +0.6%. The highlight of the week was the release of the minutes from the last Reserve Bank of Australia (RBA) meeting. Although they said that subdued inflation may afford some scope for further easing of policy, the overall takeaway was very balanced and this suggests the central bank are comfortably ‘on hold’ for the foreseeable future. The minutes said that very low interest rates are supporting household consumption and this will add significantly to demand in the next two years. They also noted that employment growth is stronger than expected and although recent mortgage rate rises have lessened policy support slightly, conditions are still accommodative overall. The biggest impact on the Australian dollar this past week has come from further declines in commodity prices. Many commodities look like they are heading back to recent lows and this is weighing on the basket of commodity currencies. Next week we have data on construction work done and private capital expenditure to digest, along with Treasury’s mid-year economic and fiscal outlook.

 
New Zealand
The New Zealand dollar has lost ground this week weighed on by broad based weakness in commodity prices. Tuesday night’s dairy auction in particular saw a significant fall in the price of whole milk powder, down 11%, while the overall index declined by 7.9%. This completely outweighed Fonterra’s earlier announcement that they are increasing their forecasted earnings per share for the current financial year to 45-55 cents. It’s looking increasingly likely that dairy farmers will face a second season of sub $5.00 per kg pay-outs and therefore many will see continued negative cash flow. Other data of note this week includes retail sales that came in stronger than expected printing at +1.6% for the quarter. Ten out of the fifteen retail industries had higher seasonally adjusted sales volumes. We also saw 2yr inflation expectations decline a touch to 1.85% from 1.94% prior. Next week looks like a quiet one on the data front with just the trade balance of any note.
 

United States
Data from the Unites States this week has in general been a little softer than forecast, although not soft enough to raise any real doubts about a December Fed tightening. Key inflation data did come in pretty much on expectation at +0.2% month on month and this will be of some relief to the Fed as it may well signal a stabilization in prices after a recent downward spiral.  The Empire State manufacturing index, industrial production, and housing starts all printed below expectation. Earlier this morning we had the release of the Fed minutes and these certainly signalled the door is open for a December interest rate hike. There is still a range of views within the Fed and recent oil price declines will raise questions about the future path of inflation. However, barring any major shocks the Fed is likely to pull the trigger on the first interest rate hike in nearly 10 years next month. At this stage the market is pricing in around a 70% chance of exactly that. This is providing continued broad based support for the US dollar. Data next week to draw focus includes preliminary GDP, CB consumer confidence, durable goods orders, personal spending and new home sales.
 

United Kingdom
The only release of note so far this week from the United Kingdom was inflation data that hit the wires on Tuesday evening. The term “noflation” has been coined to describe the UK’s situation for much of this year and Tuesday’s data largely confirmed that. Month on month inflation rose 0.1% but year on year inflation is running at -0.1%. The GBP did however, find some support from the core inflation reading, which strips out volatile food and energy. It printed a touch stronger than forecast at +1.1% year on year, up from 1.0% prior. The Bank of England (BOE) believe inflation will stay low until at least the second half of 2016 before gradually beginning to rise. The one part of the UK economy that is certainly seeing price gains is the housing market. House prices rose by 6.1% year on year in October according to the Office for National Statistics. That is up from 5.5% y/y in August. Tonight we have retail sales data to digest and the market is expecting a decline of 0.4%, partially reversing the very strong prior reading of +1.9%. The week is rounded out with public sector net borrowing figures tomorrow night. Next week to draw focus we have the inflation report hearings, a speech from Governor Carney and the second estimate of GDP.
 

Europe
Although the fallout from the weekend's terrorist attack in Paris remains front page news, there has been some economic data worth noting. Eurozone inflation came in a touch stronger than expected at 0.1%, with the core reading printing at 1.1%. The market had been expecting a reading of flat for the headline and 1.0% for the core rate. Although it would have come as a welcome surprise to the ECB it is certainly not strong enough to impact their current thinking. President Draghi has clearly signalled that they will take a look at further monetary policy options at their December meeting. Many in the market are expecting them to ease further and this is keeping the Euro on the back foot. ZEW economic sentiment readings for Germany improved to 10.4 from 6.7 prior, while the broader Eurozone reading declined to 28.3 from 35.2 prior. We have the ECB meeting minutes set for release tomorrow night along with a speech from Draghi. Next week sees manufacturing and service sector PMI’s hit the wires along with the German IFO business climate index.
 

Japan
GDP data from Japan on Monday confirmed what many had expected. That is that Japan entered back into technical recession in the third quarter. Preliminary GDP printed at -0.2% q/q which was worse than the -0.1% expected. This comes on the back of the second quarters -0.2% result and it will certainly make for some interesting discussion at today’s Bank of Japan (BOJ) policy meeting. The market isn’t expecting any further action from the BOJ at this stage and that’s partially because some of the detail in the GDP report paints a slightly better picture. The decline in GDP was driven by falling business inventories and weak investment, but consumer spending was more robust. The drop in inventories suggest companies are clearing stockpiles and this coupled with increasing consumer spending means they may well need to increase output over the coming months. The BOJ are certainly capable of delivering a surprise however, and so all eyes will be on the statement released later this afternoon. Next week we have the BOJ minutes, retail sales, household spending and inflation data to digest.
 

Canada
There has been little of note released from Canada so far this week. Only manufacturing sales data would have drawn any interest and it came in at a disappointing -1.5%. The market was expecting a reading of +0.3%. This obviously weighed on the Canadian dollar to a degree and further declines in oil prices are also not helping the currency. We get wholesale sales data tomorrow night along with inflation and retail sales figures. Those releases will set the tone heading into next week which looks to be a very quiet one data wise with only the raw material price index of any note, albeit of limited impact at the best of times.
 
 

FX Update: Global monetary policy expectations provide the lead

Written by Edited by Ian Dobbs on November 17th, 2015.      0 comments

3:00pm(NZT)
Market Overview:
The USD continues to be in vogue in recent trade despite a miss on Friday in the U.S. October retail sales release (+0.2% m/m vs. +0.4 % exp.). Terror events over the weekend have dominated media headlines and have perhaps contributed to some of the dollar’s strength as the market seeks the safe-haven status of the USD. The EUR continues to trade heavily. It is near lows not seen since April as the market continues to re-price the case for additional monetary policy accommodation at the December ECB meeting. Friday’s lower than expected Eurozone Q3 GDP number only adds to the argument. U.S. and U.K. inflation data tonight along with the FOMC minutes and BOJ monetary policy meeting on Thursday will dominate the landscape for the remainder of the week.
 

Australia
Today’s RBA minutes are the only event out of Australia of any note this week, although little new information is expected after the recent RBA statement on monetary policy. The AUD has outperformed many of its peers after last week’s solid October employment report saw the unemployment rate fall to 5.9%, with 40k full-time jobs added in the month. Low impact new motor vehicle sales for October released yesterday fell 3.6% m/m from +5.9% the month prior. The weekend’s terror events have seen the markets seek safety in US dollars. Direction for the AUD for the remainder of the week will be dictated by risk sentiment and the key U.S. data flow which includes tonight’s inflation report and Fed monetary policy meeting minutes on Thursday morning.
 

New Zealand
The weekend’s terror events and falling equity bourses on Friday have seen the NZD slide at the start of the week as investors sought safety in USD’s. Yesterday’s NZ Q3 retail sales report has done little to change the momentum after it rose 1.6% in the quarter, better than the 1.3% expectations. The core number (ex-autos and fuel) rose a more modest 1.0% (1.4% exp.) however. Focus for the week now turns to tonight’s latest Fonterra GDT dairy auction where prices look set for a third consecutive decline. The local data calendar for the rest of the week lack’s punch, this will see offshore events/risk sentiment and data take central stage, the key U.S. releases are tonight’s inflation report and the FOMC minutes on Thursday morning.

 
United States
The USD has continued to advance this week as the market sought to buy dollars after the weekend’s terror attacks in France and Beirut. Data released on Friday was dominated by the weaker than expected U.S. retail sales report for October which posted a 0.2% m/m gain, half the 0.4% rise expected. Core producer prices were seen falling 0.3% m/m for the month against the +0.1% forecast. The brightest note was the University of Michigan consumer confidence release which beat forecasts rising to 93.1 against the 91.5 forecast (90.0 prior). The improvements were seen in both the current conditions and expectations series. Inflation expectations 5-10 yrs out stabilised at 2.5%, although remain at their lowest levels since 2002. Focus will now turn to October inflation and industrial production data due for release tonight. Adding to interest are various Fed officials are also due to speak. The FOMC minutes will be of primary interest on Thursday morning, building permit and housing start numbers will feature the same day. The week is rounded out with weekly employment data and the Philly Fed manufacturing index on Friday.


United Kingdom
It has been a quiet start to the week for the GBP as the market waits for tonight’s inflation and Thursday’s retail sales reports. Yesterday saw the release of the low impact Rightmove House price index. This posted a fall of 1.3% m/m in November against the +0.5% expectations (0.6% prior),  and further house price data is due for release tonight. Expectations for this week’s inflation and retail sales releases are low and may leave the GBP open to a further rally, a rally which gathered momentum after last week’s solid U.K. Q3 labour market data which saw the unemployment rate reaching near seven year lows (5.3%).


Europe
The Euro trades heavily near its lows last seen in April currently as the market continues to re-weight the case for further monetary policy accommodation from the ECB at its December meeting. Preliminary Euro area Q3 GDP data released on Friday added to the case after it climbed just 0.3% q/q and 1.6% y/y, against the 0.4% and 1.7% expectations. The growth was supported by a modest increase in consumer spending and reasonable momentum in exports. European core inflation data released overnight was seen marginally beating expectations after it climbed 1.1% y/y in October against the 1% rise expected. Focus will now turn to tonight’s German and euro area ZEW economic confidence data, before a speech by ECB president Draghi scheduled for Friday.


Japan
Data released yesterday showed Japan falling into a recession for the second time since late 2012. The GDP was seen declining by an annualized 0.8% in the 3 months ended Sept. 30, much worse than the -0.2% fall predicted. Weakness in business investment and shrinking inventories drove the contraction, as company spending and production faces pressure from slow growth in China and a weak global outlook. The release could place additional pressure on the BOJ to boost fiscal and monetary stimulus at this Thursday’s BOJ meeting. However, key to this will be whether yesterday’s report has had any impact on the BOJ officials outlook for the improving trend in inflation.  Industrial output released on Friday advanced 1.1% in September (1.0% exp.), although it failed to make up for the contractions seen in July and August. The safe haven status of the JPY will also be important this week given the recent offshore events.


Canada
A sharp rally overnight in oil prices from their lows seen near $40 (WTI) yesterday has helped the CAD recover from its lows. This came after it temporarily experienced a minor rally on the back of a weaker than expected U.S. retail sales report on Friday. The market will continue to focus on energy market developments this week, especially given the heightened geopolitical tensions seen in Syria after the weekend’s terror attacks. Canadian retail sales and inflation data due for release on Friday will also be watched in what is likely to otherwise be a quiet week.
 

Major Announcements last week: (Tuesday only)
  • China inflation (Oct. -0.3% m/m vs -0.2% exp.)
  • China Industrial Production (Oct. +5.6% y/y vs. +5.8% exp.)
  • UK ILO Unemployment rate 5.3% vs 5.4% exp.
  • Australian Unemployment rate (Oct. 5.9% vs. 6.2% exp.)
  • Australian Employment change (Oct. +58.6k vs. +15.0 k exp.)
  • Euro-zone Q3 GDP +0.3% q/q vs. +0.4% exp.
  • US Retail Sales (Oct. +0.2% m/m vs. +0.4% exp.)
  • US University of Michigan Consumer Confidence +93.1 vs. 91.5 exp.
 

Economies of Note - 13th November

Written by Edited by Ian Dobbs on November 13th, 2015.      0 comments

2:00pm(NZT)
Australia
The data week in Australia was dominated by the release yesterday of October employment data. The number was very strong beating the 15k consensus as 58.6k jobs were added for the month, of which 40k of the positions were full-time. The unemployment rate was seen dropping to 5.9% from 6.2% (6.2% exp.). 315k jobs have now been created over the last 12 months, the biggest annual job gain recorded in the past 7 ½ years. However, the ABS employment data has been volatile over recent months and has many exercising caution about taking the number at face value, expectations of further cash rate cuts naturally took a hit after the strong numbers. Earlier in the week saw Australian ANZ Job Ads for October rise just 0.4% (3.8% prior), whilst NAB business confidence was seen dipping in the month. Although home credit growth for September grew strongly at +2.0%, investment lending for homes was seen falling sharply (-8.5%). Chinese data releases saw exports fall 6.9% in October over the weekend. Deflationary pressure was seen intensifying in October as CPI inflation eased further to 1.3% y/y, the PPI at -5.9% y/y remained sharply negative reflecting weak domestic demand and falling global commodity prices. Chinese retail sales were seen accelerating to its fastest rate this year (11% y/y). Whilst Chinese Industrial Production rose 5.6% from a year earlier. Next week is quiet, with only the release of the RBA minutes on Tuesday being of any note.


New Zealand
Trade in the NZD this week has been dominated by offshore developments with only second tier data being released in NZ. It has been a subdued week after the local currency took a sharp downwards adjustment on Friday as investors chased USD’s after the strong U.S. October non-farm payrolls employment report. This saw the addition of 271k jobs (182k exp.) and the U.S. unemployment rate fall to its lowest since 2008 (5.0%). Locally the Financial Stability report released on Wednesday saw the RBNZ continue to express concern over the risks posed by dairy lending and a strong Auckland and surrounding regions property market. During the week ANZ consumer confidence for November was seen rising to six month highs at 122.7 (+6.8% m/m). The Food Price Index release for October fell 1.2% whilst the NZ Manufacturing Purchasing Managers Index for October fell to 53.5 from 55.4. Next week will be dominated by the release of NZ Q3 retail sales data on Monday and the latest GDT dairy auction on Wednesday morning.
 

United States
It has been a relatively quiet week out of the U.S. this week after the USD surged higher on Friday after the release of much better than expected labour market data. This saw expectations for a December Fed rate hike lift to 70% after the unemployment rate fell to its lowest level since 2008 (5.0%). Initial jobless claims released overnight disappointed somewhat after they were unchanged at 276k in the week of 7 November (270k exp.). JOLTS job openings rose to 5.526M in September, the second highest level on record, a result which backs up the strength seen in last week’s non-farm employment report. The USD has eased over the week given the void of critical data as the market now awaits the more key U.S. retail sales data tonight. Other pending data releases include University of Michigan confidence and producer price data (also tonight). Next week will see the release of October inflation data, building and housing start data, weekly initial/continuing jobless claims and various regional manufacturing surveys. Industrial production and capacity utilization data on Wednesday will also be of some interest.
 

United Kingdom
The U.K. data calendar has been dominated this week by Wednesday’s release of the U.K. Q3 labour market data. The data showed strong momentum in jobs growth which helped push the unemployment rate down to 5.3% (5.4% exp.), near seven year lows. The U.K. economy added 177k new jobs in the 3 months to September. The data has helped the GBP recover somewhat from last week’s poor showing which occurred after the release of much better than expected U.S. employment data on Friday. Weak U.K. industrial production data that fell 0.2% m/m in September also placed pressure on the pound into the end of the week. Next week will see key releases which include October U.K. inflation and producer price data on Tuesday, the inflation report hearings also on Tuesday, and October retail sales data on Thursday.
 

Europe
Market sentiment towards the Euro this week again centred on the discussion of ECB monetary policy and the weak euro area inflation dynamics. The diverging monetary policy paths of the U.S. Fed and ECB again saw the Euro come under pressure, especially early in the week as the market continued to absorb the implications of Friday’s strong U.S. labour report. Media reports at the start of the week suggested that the ECB are preparing for rate cuts at the December 3rd ECB meeting, currently the market expects at least a 10 bps cut in the deposit rate at the meeting. In a speech overnight ECB president Draghi expressed concern over the inflation dynamics and subdued price pressures present in the euro-zone. He added that the ECB is prepared to use all instruments available to it within its mandate to achieve its medium-term price stability objective. Data released during the week showed September French industrial production (IP) surprising to the upside. The Italian IP disappointed rising just 0.2% m/m, lower than the 0.5% expectations. The euro-area IP was weaker than expected falling 0.3% against the 0.1% decline expected. Focus will now turn to the Q3 European wide GDP data tonight. Next week will see the release of German/Euro area ZEW confidence data, low impact German producer price and euro-zone construction output data, and the release of euro area inflation figures.
 

Japan
Last week’s strong U.S. employment data which has heightened expectations of a December Fed interest rate lift-off has dominated sentiment towards the Yen this week. In Japan preliminary machinery tool orders for October fell 23.1% y/y. September Machinery orders beat the +3.3% expectations however rising 7.5% m/m. Current account data for September at 1.47 Tn JPY missed the 2.235 Tn JPY expectations. Of interest today will be the release of September industrial production data although the main focus will now turn to next Thursday’s key BOJ monetary policy meeting. Other data releases next week include Japanese trade data also on Thursday and the preliminary release of Japanese Q3 GDP data on Monday.
 

Canada
Oil price declines this week (WTI $41.65 last) which have contributed to a near 10% fall in prices this month alone, have seen the CAD continue to slide. This follow a sharp fall after Friday’s the release of the strong U.S. October non-farm payrolls employment report. Canadian employment data also released on Friday saw employment rise by 44k in October, beating the 10k market consensus- although part-time rolls (35.4k) dominated the data. Canadian housing starts data for October released this week printed near expectations at 198.1k y/y whilst new house prices rose just 0.1% m/m in October against the 0.2% rise expected. Next week will be dominated by the release of Canadian September retail sales data and October inflation data on Friday. Energy market developments will also be pivotal.
 
 

FX Update : Get ready for a December US interest rate hike

Written by Edited by Ian Dobbs on November 10th, 2015.      0 comments

1:00pm(NZT)
Market Overview:
The US dollar and U.S. Fed rate hike expectations surged on Friday after the release of a block-buster October non-farm payrolls report which saw a gain of 271,000 jobs, well above the 182,000 market expectations. This was the largest monthly employment gain this year; the unemployment rate at 5.0% is now the lowest since 2008. Fed rate hike expectations for a December lift-off have moved from ~55% before the number to around 70% now and should make the decision to move an easier one for Fed chair Janet Yellen. In Europe expectations of a rate cut by the ECB in December continue to mount, whilst across the English Channel dovish rhetoric from the BOE have the market continuing to delay expectations of a move in the near-term from the BOE.
 
 
Australia
Last week saw the RBA leave interest rates on hold at the historic low of 2.0%, a level it has been at since May this year. However, the RBA board said that the soft inflation outlook could open the door for a further rate cut if required. The RBA lowered their underlying inflation outlook on Friday to 2.00% from 2.50% for this calendar year and forecast a 2.00% rate for the year to June 2016 also. Data released over the weekend saw Chinese exports fall 6.9% in October, worse than the 3.0% decline expected. The trade balance marginally missed expectations after China posted a $61.4 Bn surplus for the month ($62.0 Bn exp.). Australian ANZ Job Ads for October released yesterday rose 0.4%, well down from the 3.8% print registered last month. This week we look forward to the NAB Business Confidence survey and RBA housing credit data later today before the more important October employment data on Thursday.
 

New Zealand
Sentiment towards the local currency soured last week after another fall in the GDT dairy auction which saw the GDT-TWI register a 7.4% decline. The NZ Q3 employment report released the same day showed a loss of 11,000 jobs during the quarter (+10,000 exp.) as the NZ economy struggles to generate the degree of new jobs required to accommodate the surging migration numbers. The currency faced further headwinds at the end of the week after the release in contrast of an exceptionally strong U.S. October employment report on Friday. This saw U.S. non-farm payrolls swell by 271,000 jobs, well above the 182,000 expectations. The report also showed falling U.S. underemployment and a lift in the annual pace of growth in average hourly earnings to 2.5%. Expectations for a Fed-lift in rates in December spiked as a result of the release and contrast sharply with NZ’s bias towards lower rates in the months ahead. A speech by the RBNZ Governor Wheeler tomorrow dominates an otherwise quiet local calendar this week.
 

United States
Expectations of a Fed rate hike in December surged on Friday after the release of a very strong U.S. October non-farm payrolls report (+271k, vs. +182k exp.). The figures showed the largest monthly employment gain this year and the lowest unemployment rate since 2008 (5.0%, from 5.1%). Average earnings growth posted its largest rise since 2009 (+0.4% m/m vs. 0.2% exp) whilst the underemployment rate also fell further to 9.8%, some 1.7% lower than levels seen a year ago. The fact that U.S. equities were largely unperturbed by the data and with market expectations for a December lift-off now at 70% should help make the transition to rate hikes more easy for the U.S. Fed Chair Janet Yellen. ISM manufacturing data released earlier in the week met expectations, whilst the non-manufacturing survey was stronger than expected after it increased to 59.1 in October from 56.9 the month prior. U.S. data releases this week concentrate on Friday and will be dominated by the October retail sales report and producer price data.
 

United Kingdom
The BoE meeting dominated trade in the GBP last week. The local currency fell sharply after the BoE was seen lowering its near-term inflation forecasts on the back of continued weak oil prices, an elevated currency and concern over global growth. A strong U.S. non-farm employment report release on Friday only added to the GBP’s woes. U.K. industrial production also released on Friday showed a 0.2% decline m/m in September and a decline in the annual pace of growth to 1.1% from 1.8%. The simultaneous release of better than expected U.K. trade data was largely overlooked by the market. Construction and Services PMI data released earlier in the week was generally solid and showed that activity remained well into expansionary territory. This week will be dominated by U.K. employment data to be released on Wednesday night.
 

Europe
ECB monetary policy discussion and a strong U.S. labour report dominated sentiment towards the Euro over the last week. Media reports released overnight suggested that the ECB are preparing for rate cuts in December and that some Governing council members were pushing for a ‘big cut’. Last week ECB President Draghi noted concerns over price stability in the medium term and the effectiveness of the current Asset Purchase Programme (APP) in achieving this goal. Weak German factory order (-1.7% m/m) and industrial production data (1.1% y/y vs. 1.3% exp, 1.8% prior)  released towards the end of the week also placed the EUR under pressure. Tonight sees the release of relatively low impact French and Italian Industrial Production data before German and French inflation data on Thursday and Euro-wide GDP data on Friday.
 

Japan
It was a slow week for data-flow in Japan last week. Sentiment towards the JPY has been dominated by the end of week release of a strong U.S. October employment report. This has the market lifting its expectations for a Fed rate lift-off in December. Locally the BOJ released the minutes to its monetary policy meeting which noted concern over the impact of low oil prices on the bank’s 2.0% medium-term inflation target. The market expects the BOJ Governor Kuroda to be proactive in easing monetary policy further should offshore risks pose a threat to the moderate Japanese recovery. Later today will see the release of Japanese current account data which is expected to expand from last month’s reading (2.235Tn JPY exp.). Thursday will see the release of Japanese Machinery orders data before the week is rounded off with Industrial production and Capacity Utilization data of Friday. These second tier data releases should be dominated by USD sentiment.
 

Canada
Friday’s better than expected Canadian employment release took a back seat to the strong U.S. employment data report. Canadian employment rose by 44,000 in October, well above the 10k market consensus, although the number was dominated by a large rise in part-time employment (35.4k). Much of the increase being official roles related to the recent Canadian election. The unemployment rate fell to 7.0%. RBC Manufacturing PMI data and the Ivey purchasing managers index releases both fell short of their expectations. Canadian Housing Starts data for October released overnight marginally missed the 200k expectations at 198.1k, well down from last month’s 231.3k print. Oil market developments and U.S. data flow should drive the CAD given this week’s empty Canadian data calendar.


Major Announcements last week:
*German Manufacturing PMI (Oct. 52.3, vs. 52.0 exp.)
*UK Manufacturing PMI (Oct. 55.5, vs. 51.3 exp.)
*Australian cash rate, 2.0% as exp.
*UK Construction PMI (Oct. 58.8 as exp.)
*NZ GDT Dairy index -7.4%.
*NZ Q3 Employment (-11k, +10k exp.)
*Australian Retail Sales (Sep. 0.4% as exp.)
*US ISM Non-manufacturing PMI (Oct. 59.1 vs 56.5 exp.)
*UK cash rate, 0.5% as exp.
*Canadian Ivey PMI (Oct. 53.1 vs. 54.0 exp.)
*US Non-farm Payrolls (Oct 271k vs. 182k exp.)
*US Average Hourly Earnings (Oct. 0.4% vs. 0.2% exp.)
 
 

Economies of Note - 6th November

Written by Edited by Ian Dobbs on November 6th, 2015.      0 comments

1:00pm(NZT)
Australia
The RBA interest rate decision on Tuesday dominated sentiment towards the AUD this week. The RBA left the rates on hold at 2.0% (against the predictions of many), although moved to an easing bias after noting in their statement that the “outlook for inflation may afford scope for further easing of policy”. The RBA commented that the prospects for an improvement in economic conditions had firmed a little and that leaving the cash rate unchanged was appropriate. Data releases on Monday showed a sharp improvement in Australian building approvals for September, whilst Chinese manufacturing PMI data showed conditions that remained below the 50.0 expansionary level for the third month in a row. Australian Retail Sales data for September released on Wednesday met expectations rising 0.4% m/m. The September trade deficit was seen narrowing to $A2.317 Bn from the revised $A2.711 Bn number the month prior. The market now keenly awaits the RBA minutes this afternoon in order to garner additional insight into Tuesday’s cash rate decision. Next week will see the release of the key October employment report on Thursday.
 

New Zealand
The NZD had a poor week sliding significantly after the latest GDT dairy auction and unemployment report on Wednesday morning. The latest dairy auction saw the GDT-TWI fall 7.4%, this was promptly followed by a sharp fall during the day in the NZX futures pricing of ~ 10% for the next contracts. Improving milk production levels and data which points to Chinese demand in 2015 significantly lagging last year’s levels has increased market speculation of increasing inventory levels going forward. NZ unemployment data for Q3 released the same day placed additional pressure on the local currency after the number of people employed dropped by 11,000 in the three months to September, against expectations of a 10,000 gain. The unemployment rate rose to 6.0% (from 5.9%), the September quarter was the first time employment across the entire economy had dropped in three years. The rate now sits 0.6% above the 5.4% low seen 12 months ago. New jobs growth has fallen behind the expansion of growth in the workforce as record migration numbers sees the working age population growing at a faster rate. Wednesdays data would have been even worse had the numbers actively seeking work not declined by 8,000 (the participation rate dropped to 68.6% from 69.3%). Offshore drivers are likely to dominate next week in what is a quiet week locally for data.
 

United States
The key focus for USD this week will be tonight’s release of the October Nonfarm Payrolls report. Consensus expectations are for a 182k gain in jobs. Investors will be looking for clues as to whether the Fed will raise interest rates in December, a possibility of which the Fed Chair Janet Yellen again alluded to this week. Market pricing presently puts the chance of a Fed rate hike this year at over 50%. The U.S. ADP employment report gave little additional insight into tonight’s payroll’s number after it printed broadly in line with expectations, rising 182k in October. Weekly initial jobless claims were higher than expected rising to 276k (264K exp.) although the overall level remains low and points to solid nonfarm payrolls growth tonight. The ISM manufacturing survey released on Tuesday printed broadly in line with market expectations, although the non-manufacturing survey was much stronger than expected increasing to 59.1 in October from 56.9. The details of the survey showed strong gains in new orders and employment. Next week will see a raft of largely second tier U.S. data which should not influence the Fed thinking, although Friday’s October Retail Sales report will be of interest to many.
 

United Kingdom
The overnight BoE meeting was the primary focus for the U.K. this week. The BoE kept its cash rate on hold at 0.5% as expected. The GBP came under heavy selling pressure after the BoE down-graded its near-term inflation forecasts citing continued weakness in oil prices, weaker global growth projections, and the still elevated level of the currency. Inflation was seen remaining below 1% until  H2 2016. The bank also noted risks to the forecasts were to the downside. Data released on Monday showed U.K. Manufacturing PMI rising to its highest level since June 2014 in October on the back of firm export orders. October Construction PMI data released the following day was also strong at 58.8 (on exp.) and showed that activity remains firmly in expansionary territory. Services PMI data released on Wednesday at 54.9 beat the 54.5 expectations, and was up from 53.3 the month prior. The week ahead will be dominated by the U.K. October employment data on Wednesday and the inflation report hearings the day prior. Tonight’s Manufacturing and Industrial Production data will also be of interest.
 

Europe
The Euro continued to be under pressure this week as investors focused on the diverging monetary policy expectations between the U.S. Fed and the ECB. Comments from ECB President Draghi overnight noted that whilst the ECB’s current Asset Purchase Programme (APP) has been effective the ECB must also consider whether the current format will be effective in returning price stability over the medium term, given the headwinds presented by a weakening world economy. Euro-zone inflation data released on Friday (flat y/y) shows that inflation still remains dormant and far from the ECB’s 2% target, expanded stimulus remains a very real possibility before year end. Data flow was mixed this week, the final euro zone area manufacturing PMI was upgraded modestly to 52.3, whilst at 53.9 the euro zone Markit composite PMI fell just shy of the 54.0 expectations. German factory orders fell 1.7% m/m in September, a marginal improvement from the month prior (-1.8%), although well short of the 1.0% rise expected. Next week will see the release of a raft of largely second tier data before more important GDP data on Friday.
 

Japan
It has been a quiet week for dataflow in Japan this week. The monetary policy meeting minutes which accompany last week’s BOJ meeting was the key event of note. The board noted in the minutes concern over the drop in crude oil prices and the impact it would have on delaying the 2% inflation target. The BOJ pointed the finger at firms for the slow rise in wages during a period of record profits. Last week’s BOJ meeting saw the BOJ reduce their inflation and growth projections and leave its stimulus program unchanged. The only data of note this week was the release of the October Manufacturing PMI data on Monday which showed growth in production increasing to its fastest rate since February (52.4) and new orders increased at their fastest rate in a year. Next week will see the release of Trade data on Tuesday, Machinery orders data on Thursday and Industrial Production/Capacity Utilization data on Friday.
 

Canada
The CAD has eased moderately this week after oil prices fall at the back-end of the week. Prices were not helped by data which showed rising supplies in the U.S. and inventories which gained for the sixth straight week. The RBC October Manufacturing PMI data released on Tuesday showed a fall to 48.0 from 48.6 the month prior. The Canadian Ivey purchasing managers index released overnight grew at a slower rate than expected in October and underlines concern over the health of the economy (53.1 vs. 54.0 exp., 53.7 prior). Data from last week showed Canadian August GDP rising 0.1% m/m, in line with market expectations. Immediate focus now turns to tonight’s employment data, market forecasts centre on a steady 7.1% Canadian unemployment rate and the gain of 10k jobs in October.
 
 

FX Update : Central banks again in the spotlight

Written by Ian Dobbs on November 3rd, 2015.      0 comments

5:30pm(NZT)
Market Overview:
This week shapes up as another important week for the markets starting with today’s RBA cash rate announcement and statement on monetary policy on Friday. Current pricing only marginally favours the RBA remaining on hold at 2.0% today. Expectations of a rate cut have increased after the recent Q3 inflation report and lift in mortgage rates. In the U.S. it will be all about the October employment report on Friday where market consensus forecasts centre on a 182k gain in jobs. Last Friday’s BOJ meeting failed to ignite the market after the BOJ failed to add any extra stimulus to its current program. However, the market remains convinced of further easing in months ahead as inflation struggles to reach the 2.0% BOJ inflation target. A lack of inflation also remains at the front of the ECB’s mind. ECB president Draghi said at the weekend that he expected inflation to remain near zero into 2016 and that the ECB was ready to do what it takes to keep medium-term inflation on course. Tonight’s GDT dairy trade auction and NZ unemployment report tomorrow will be important drivers for the NZD this week.
 

Australia
The RBA interest rate decision later today is the major event on the Australian calendar this week. Market pricing puts the chance of a cut from the present 2.0% at marginally less than 50%. The recent lift in mortgage rates and low-side inflation reading last week (+0.5% vs.+0.7% exp. q/q) have added fuel to the rate cut debate. Whilst the decision is a close call we see the RBA remaining on hold as the underlying inflation measure printed within the 2-3% RBA target (headline 1.5% p.a.). Data released late last week was mixed, HIA new home sales for September fell 4.0% whilst September private sector credit at 0.8%, exceeded the 0.5% expectations. Chinese manufacturing PMI data released over the weekend remained below the 50.0 expansionary level for the third straight month (49.8), the Caixin measure released yesterday was also soft although improved to 48.3 from 47.2. Chinese non-manufacturing PMI data slowed to 53.1 as small firms continue to feel the strain. Australian building approvals data for September rose 2.2% slightly exceeding the 2% expectations. Trade and retail sales data tomorrow are of note before the more important RBA statement on monetary policy on Friday.
 

New Zealand
Unemployment data due for release tomorrow for Q3 and the latest GDT dairy auction (tonight, futures currently imply a ~ 5% decline) will dominate sentiment towards the NZD this week. The unemployment rate is forecast to rise above 6 % as record migration numbers boost the working age population. The economy is forecast to have created an additional 10k jobs in the 3 months to September 30. Trade last week was heavily influenced by the cash rate announcement where the RBNZ was seen leaving the cash rate on hold at 2.75%. Comments from the RBNZ may limit the NZD’s upside in the near term after the Governor expressed concern over the recent currency strength and the impact it may have on inflation and economic activity. The ANZ business confidence survey released on Friday showed a widespread boost in confidence after the large improvement seen in dairy prices since their August trough. Seasonally adjusted the bounce was the largest 1-month lift seen in 20 years.
 

United States
The U.S. FOMC meeting dominated dollar sentiment last week. This saw demand for the dollar increase as the market raised the prospects for a December rate lift off after the Fed’s more bullish than expected assessment of the U.S. economy. GDP data showed a slowing in growth in Q3 as expected. The U.S. PCE deflator (the Fed’s preferred inflation measure) rose 0.1% (0.2% exp.) and year-ended growth was unchanged at 1.3%. Employment cost data met expectations in Q3 (0.6% q/q) after a soft Q2 result, although both the pending home sales (-2.3% m/m) and CB consumer confidence failed to meet expectations. The ISM manufacturing survey released overnight whilst broadly in line with market expectations (50.1, vs. 50.0 mkt.) shows that manufacturing activity continues to slow throughout the course of 2015. Data flow this week will help drive Fed rate hike expectations, with Friday’s October Nonfarm Payroll report being of critical importance. Expectations centre on a 182k gain in jobs and no change in the unemployment rate at 5.1%. ISM Non-Manufacturing PMI data and a testimony from the Fed chair Janet Yellen (both on Thursday morning NZ time) will also be of interest.
 

United Kingdom
The BoE meeting (Friday morning NZ time) hogs the focus in the U.K. this week in what is otherwise a quiet week data wise. No change in monetary policy is expected, although the market will closely watch the bank’s comments for thinking on future BoE action. Currently the market is not looking for a first rate hike until 2017. Data released last week mainly disappointed. GDP for Q3 showed a moderation in growth to 0.5% q/q from 0.7% in Q2, the mortgage approval and CBI industrial order indicators also failed to meet expectations. On a positive note U.K. manufacturing PMI data for October rose to its highest level since June 2014 in data released overnight (55.5 vs. 51.3 exp.). The data was helped by strong export orders, the employment component remained in expansionary territory for the 30th consecutive month. Construction PMI data due for release tonight and Services PMI data (tomorrow night) will also be of interest.
 

Europe
The Euro suffered last week on the back of a surge in the dollar post the U.S. FOMC meeting. Increasing expectations of ECB easing before the end of the year have also weighed. German data was largely solid. The unemployment rate at 6.4% remains at post-reunification lows, German inflation at 0.2% y/y exceeded expectations, although flat September retail sales failed to meet the 0.4% rise expected. Flat y/y euro zone inflation data released on Friday was an improvement on the -0.1% y/y decline recorded in September, although still remains well below the ECB’s near 2% target. ECB President Draghi said in comments at the weekend that he expected inflation in the Eurozone to remain close to zero, if not negative, into 2016. He also added that the ECB is ready to do what it takes to keep its medium-term inflation target on course. Yesterday saw the final euro zone area manufacturing PMI data upgraded modestly to 52.3 (from 52.0). It was driven by improved revisions in the German PMI data, the French and Spanish numbers were revised lower however. The remainder of the week will be punctuated by more PMI data. German factory data on Thursday night and industrial production on Friday will be of some interest.
 

Japan
The BOJ interest rate meeting was the key event in Japan last week. The central bank left its policy settings unchanged on Friday and pushed back the timing for its expectations of achieving its 2% y/y inflation target to H2 2016. The market will continue to price the potential for further easing in the months ahead whilst the BOJ continues to struggle to achieve this target. Despite September core inflation data marginally topping expectations on Friday (-0.1% y/y vs -0.2% exp.), it did little to change the markets thinking. Other data released last week was mixed. Industrial production data improved sharply (+1% m/m) in September, although retail sales fell 0.2% y/y. September household spending and start data both failed to meet expectations. October manufacturing PMI data released yesterday showed growth in production increasing to its fastest rate since February (52.4) and new orders increasing at their sharpest rate in a year.
 

Canada
Losses for the CAD for most of last week reversed late in the week to leave it moderately higher today on levels a week ago. Canadian August GDP data released on Friday met expectations rising 0.1% m/m. Whilst posting a third straight month of growth the levels were less than those posted a month prior. RBC October manufacturing PMI data released overnight fell to 48.0 against the 48.5 expectations. The CAD has eased somewhat in recent trade on the back of sliding oil prices although sits well above levels seen after last week’s more hawkish than expected U.S. FOMC statement. The IVY PMI release on Friday morning (NZ time) and Canadian October employment data on Saturday morning are the key events to watch this week.
 

Major Announcements last week: (Tuesday only)
*German IFO Business climate 108.2 vs 107.8 exp.
*NZ September Trade balance -1222M m/m vs -800M exp.
*UK Preliminary Q3 GDP 0.5% q/q vs 0.6% exp.
*US Durable Goods Orders -1.2% m/m on exp.
*US CB Consumer Confidence 97.6 vs 103.0 exp.
*Aus Q3 CPI 0.5% q/q vs. 0.6% exp.
*NZ RBNZ cash rate 2.75% as exp.
*US Preliminary Q3 GDP 1.5% q/q vs 1.6% exp.
*NZ ANZ Business Confidence 10.5%
*Japan Unemployment 3.4% as exp.
*Eurozone Preliminary CPI 0.0% y/y vs. 0.1% exp.
*Canadian GDP 0.1% m/m as exp.
*US Employment cost index 0.6% q/q as exp.