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FX Update: The NZD remains well supported

Written by Howard Wilcox on June 27th, 2017.      0 comments

4:00pm(NZT)
Overview
Markets have been mostly range bound at the start of the week, with little to cause any major changes in current trends. Although US data in the form of Durable goods data was soft overnight, raising some questions over the resilience of US growth, the Fed desire to normalise interest rate policy continues which has helped the USD to hold onto gains against its main trading partners especially the JPY and EUR. Commodity prices remain choppy but the overall negative trend for oil prices continues and both WTI and Brent oil are now in a bear market, prices having fallen over 20% from peaks earlier this year. With increases in production from Libya, the US and Nigeria, the oil market has now taken back all the gains seen after the OPEC agreement late last year to cut production. This trend is expected to remain in force for some time yet. In Europe the focus remains on the ongoing Brexit negotiations as the UK and EU square-off on their initial sparring stance. UK Prime Minister May had her hand marginally strengthened, on news last night that she had secured support for a minority government from the Irish Democratic Unionist Party, but this has come at a hefty GBP 1 billion cost to be spent for infrastructure, schools and hospitals in Northern Ireland. The distraction that is the Trump Presidency continues, with still no concrete steps forward on tax reform or increased infrastructure spending, as the repeal of Obamacare and the Russian investigation continue to absorb the administration’s energy.


Australia
The Australian dollar continues to consolidate around the 0.7560-0.7580 level having bounced back from the 0.7534 monthly low and looks to be attempting to re-establish upward momentum for a push back to the 0.7620/30 mark. News from China has been less helpful as the deleveraging trend continues and ratings agencies are predicting a rise in defaults, however the uptick in steel prices argues well for a potential recovery in iron ore prices. Also underpinning the AUD is a rebound in Aussie jobs creation which has kept the lid on any RBA rate cut, both of which is AUD supportive. However, longer term, the higher projected US interest rate path will chip away at AUD strength and we suspect that it will be back around 0.7300-0.7350 in 3 months.


New Zealand
The New Zealand Dollar maintained its bullish momentum during the NY session Monday posting a fresh 4 month high of 0.7260. Closing in on the previous high of 0.7360 of Feb 7th the kiwi against all predictions squeezed higher. The RBNZ kept the cash rate on hold Thursday at 1.75% siting major challenges still remain with political uncertainty. Inflation has increased over the past year in several countries but remain pressured with energy prices falling, monetary policy is expected to drop going forward. Longer term inflation expectations remain well anchored around 2%. May trade balance figures yesterday came in at 103M well under the expected 420M with a rise in imports and petroleum and vehicles tipping the balance. If ANZ Business confidence is positive tomorrow we could see the kiwi back trading around the late Feb 0.7360 lofty heights.


United States
US markets continue to trade at elevated levels, although off previous highs after data showing a steeper drop in durable goods than forecast raised concern about the pace of U.S. economic growth. Overnight comments from senior Fed officials intimated that although some recent economic data has been was weaker, the message of policy normalisation was unchanged. Attention will be focused on a speech by Fed Chair Yellen later tonight to see if she provides more clarification. The USD has dropped below the 1.1200 level against the EUR as the market eyes tomorrow’s consumer confidence report which is predicted to be softer. Next week will bring a raft of US economic data culminating in Friday’s Non-farm payroll figure. Currently the EUR/USD is trading around 1.1182 with major support at 1.1120 unlikely to be tested over the next few days. Topside resistance is 1.1220 but we look for consolidation at current levels ahead of Yellen's comments.


United Kingdom
UK news is more positive with the GBP higher against the USD on the weaker US durable goods data and also helped by the political news that PM May has managed to cobble together with the Irish DUP to create a minority government, albeit at a hefty price, a GBP 1 bio in spend-up on Northern Ireland infrastructure. Brexit negotiations continue, with headlines over the past few days centring on provisions for EU immigrants living in the UK, but more worrying economically are reports of the several large banking institutions looking to move Euro clearing business to Frankfurt which has potential to negatively impact the City of London and its associated economy. Time will tell if these moves come to pass. The GBP is currently around 1.2720 against the USD after a high of 1.2756 a week ago. Immediate support is at 1.2690 then 1.2665 ahead of the weeks low at 1.2588. It should hold in the 1.2665 /1.2760 range over the next few days.


Europe
The EUR was lower overnight after comments from ECB President Draghi that low interest rates helped increase jobs, benefit borrowers and encourage growth. His comments were seen as dialling down on any expectations for an early ending of the ECB monetary stimulus policy. On a EUR positive note the German IFO business sentiment out yesterday was positive, with the Index rising from 114.6 points last month to 115.1 points in June, breaking May’s record. Companies were significantly more satisfied with their current business situation this month. They also expect business to improve. Germany’s economy continues to perform very strongly. Look for range trading around the present 1.2700 level ahead of Yellen’s speech later tonight.


Japan
The Japanese Yen was light on data releases last week relying on offshore news for direction. JPY was generally flat across most of the week dropping to a low of 110.90 midweek before giving up ground to the greenback trading at the close around 111.25. The BOJ released its summary of opinions for the June policy meeting which was unchanged at 0.7%, bang on expectation, and created no fuss in the markets with policy makers suggesting inflation would remain low for extended periods. There seems to be “no show” they will increase rates until inflation reaches their target price of 2%. The JPY trades currently at the solid resistance level of 112.00 and targets 114.60 early May levels if the US releases are positive this week, no significant local Japanese data pending.


Canada
The Canadian Dollar ended the week on a positive note, the US Dollar weaker after less than positive economic news. Crude oil traded to a low of 42.20 but recovered slightly this morning to 43.44 to boost the CAD to low 1.32’s. This could all go south again with the release of the crude inventories published tomorrow. The OPEC cut in oil production has failed to work with US and other non-agreement oil producers increasing their production keeping an over- supply in place. Thursday BOC governor Poloz speaks in Portugal and monthly GDP is published Friday. The weekly high of 1.3340 could be tested again if oil prices drop sharply, BOC is sure to bring volatility to the table and put CAD under further pressure.


Major Announcements
•    RBNZ leaves the cash rate unchanged at 1.75%
•    Canadian retail Sales 1.5% vs 0.6% expected
•    Canadian Inflation 0.1% vs 0.2%
•    US Durable Goods Orders 0.1% vs 0.4% expected
 

FX Update: NZD range bound ahead of Thursday’s RBNZ meeting

Written by Howard Wilcox on June 20th, 2017.      0 comments

3:20pm(NZT)
Overview
A quiet start to the week with relatively little economic data overnight to influence markets. Overnight US equities continued to surge higher with both the S&P500 and Dow indices rising to new record highs. On commodity markets oil continued to weaken, with WTI crude down 1.2% to US$44.20/brl continuing a four week decline as US drillers add oil rigs, circumventing attempts by OPEC to rebalance an oversupplied market. Also making news last night was the long anticipated news of an Australian credit downgrade by rating agency Moody's, who dropped the credit rating of the four Australian banks, ANZ, Westpac, CBA and NAB on concerns over “elevated risks within the household sector due to high levels of indebtedness” i.e. Mortgages. In Europe, Brexit negotiations commenced with little fanfare. The French election is now over and has left new president Macron a large majority for his En Marche party which will give him a free hand in embarking on reforms on the moribund French economy. Perhaps at last there is a chance of some real reforms to spur growth and reform archaic labour laws. A future reinvigorated France would be very positive for the Eurozone but this will be long term “work-in-progress”.
 
 
Australia
The Moody’s downgrade for the 4 major Aussie banks to Aa3 (now in line with S&P ratings) , saw the AUD take a hit early overnight  to a low around 0.7585. This was short lived however and the AUD bounced back to the 0.7600 helped by a rally in the iron ore price which were up 1% and look to now be stabilising. Later today there will be the release of the RBA June meeting minutes which will be inspected for comments around any timing of interest rate movements. The market has fully priced in a' no-change' to rates for the rest of this year, any surprises in the language of the minutes, either way, could move the market significantly there is also the ANZ Consumer Confidence data later in the day . The AUD/USD has been in correction mode since the beginning of this month from lows of 0.7374. In recent trading, the pair broke up through the 0.7600 level. Any upside surprises from the meeting minutes could eye a break towards the 0.7640 resistance area, while on the flip side, a break below 0.7570 would expose 0.7520.
 
 
New Zealand
The New Zealand dollar was lower overnight, dropping in sympathy with the AUD, from 0.7280 to 0.7227. It opens around 0.7223 but continues to be well supported ahead of tonight's Global Dairy Auction, expectations are for a slight increase in prices and the RBNZ statement on Thursday. Hawkish comments from a US Fed official overnight helped accentuate the divergence between the Fed and RBNZ and along with last week's softer GDP data the NZD looks set to remain below the 0.7250 level at least until Thursday’s statement is out of the way. The NZD is currently trading around 0.7220 but a break of 0.7200 would target 0.7145, but expect consolidation around current levels for the next few days.  The NZD/AUD cross has drifted lower and is currently holding around 0.9505 but looks to hold in a 0.9480-0.9615/20 range over the next few days...downside looks more favoured.
 
 
United States
US equity markets continue to forge higher, even though last night saw comments from Fed official Dudley displayed his confidence in the FOMC’s rate hike path in addition to acknowledging continued growth in the economy. One of the FOMC’s important messages from the June meeting was that the Committee was not unnerved by recent downside surprises in inflation or underperformance of some economic indicators in recent months, this has unsettled some investors who remain concerned that potentially rate hikes may occur as inflation flat lines. However Dudley last night provided the markets with yet another vote of confidence that recently lagging inflation would pick up, justifying higher interest rates going forward. In his speech, Dudley asserted, "inflation is a little lower than what we would like, but we think that if the labour market continues to tighten, wages will gradually pick up, and with that, inflation will gradually get back to 2%." The USD was bolstered on the back of these comments and with the EUR/USD unable to break over the 1.1300 level a stronger USD looks to favour the downside targeting 1.1100 which if broken would expose 1.1000.
 
 
United Kingdom
Brexit negotiations began yesterday with little fanfare, however the UK’s negotiator, David Davis and the EU slammed the door on any prospect of a “soft” Brexit as formal negotiations on leaving the EU finally got underway in Brussels.  The Brexit Secretary confirmed Britain would be leaving the customs union and the single market, in a move designed to scupper any parliamentary plots to water down the terms of the UK’s withdrawal from Europe. His counterpart, Michel Barnier, the EU’s chief Brexit negotiator, also confirmed that Britain would leave the single market and the customs union. Such a unified public declaration of the intention to press ahead with a “hard” Brexit, sends a clear message to former Remain campaigners in Parliament who still hope membership of the customs union and the single market are up for grabs. Davis commented that he intends to seek a free trade and customs agreement with the EU during the course of the negotiations, this is likely to meet with some resistance from the EU. The GBP/USD traded higher, climbing to 1.2813 , but then dropped to 1.2722 after the Fed comments ...resistance at 1.2820 is now  distant, with a move to test immediate support at 1.2705 more likely over the next day or so.  
 
 
Europe
European equity markets were higher following the convincing parliamentary majority for President Macron. The victory is welcomed by investors and should bring political stability to one of the biggest countries of the EU, given that the French economy underperformed leading to stagnation and persistent high levels of unemployment (10%+) under Francois Hollande , investors are optimistic on future growth potential. In other news German Chancellor Merkel was reported as commenting that Europe had not yet made a full recovery from the GFC. The EUR/USD traded in a neutral 1.114-1.1265 range overnight with few notable data releases.
 
 
Japan
Disappointing Japanese trade balance data and the more hawkish Fed comments saw the JPY weaken against the USD towards the 112.00 level with an overnight high of 111.58, it has opened weaker, now around 111.64 . The May Japanese trade balance, released yesterday, was well below that expected, posting a deficit of ¥203.4 billion, missing the expected surplus of ¥76.0B. Imports, however, were up by 17.8% when compared to a year earlier, while exports rose by 14.9%, doubling previous month's gain but slightly below expected. Immediate USD/JPY support is now at 111.25 with resistance at 112.00 and given the firm Fed stance a slow grind higher towards 112.45 once 112.00 if 112.00 gives way y over the next few days.
 
 
Canada
With WTI crude oil back under US$45/brl pressure is back on the CAD after ending the week at 18 month highs after comments from the Band of Canada Governor that he saw the potential to hike interest rates sooner than the market was expecting. The CAD dropped to 1.3190 overnight. It has now regained the 1.3200 handle trading around 1.3220. Immediate resistance remains 1.3300, then 1.3365. Last week’s low around 1.3165 is critical support, looks likely to be tested later in the week.


Major Announcements
•    UK Average Earnings Index 2.1% vs 2.4% expected
•    US CPI -0.1% vs 0.2% expected
•    US Core Retail Sales -0.3% vs 0.2% expected
•    FOMC hikes interest rates 0.25% as expected
•    NZ GDP 0.5% vs 0.7% expected
•    Australian Employment change 42.0k vs 9.7k expected
•    Australian Unemployment rate 5.5% vs 5.7% expected
•    UK Retail Sales -1.2% vs -0.9% expected
•    Bank of England vote 3-0-7 to leave rates unchanged at 0.25%
•    Bank of Japan leaves interest rates unchanged at -0.10%

 
 

Economies of Note - 19th June 2017

Written by Howard Wilcox on June 19th, 2017.      0 comments

8:00am(NZT)
Australia
The AUD traded higher yesterday, hitting a two month high of 0.7631 against the USD on much better than expected jobs data. Figures showed that May unemployment fell to 5.5% exceeding expectations of 5.7%. The data was encouraging as it showed that the jobs growth was all in full time employment with 52,100 full-time positions added to the economy while 10,100 part-time ones fell away. This defied previous forecasts of an increase of only 10,000 new jobs. This  net 42,000 rise in May employment  marked the 3rd month in a row of strong job creation following on from March +53k , April +46k , there was also an increase in the participation rate which refers to the number of people either employed or actively looking for work, up to 64.9% from 69.4% in April. The AUD/USD is now around 0.7588, with solid support around the 0.7560 mark ...look for another push to the 0.7630 resistance level next week, although the ongoing USD strength will prove challenging.
 

New Zealand
After a high for the week on Wednesday at 0.7317 the New Zealand Dollar tracked lower yesterday, sinking to a low of 0.7184 after being knocked by the stronger USD on the hawkish Fed statement combined with a softer than expected quarterly GDP result. The domestic economy expanded at a slower pace than the 0.7% analysts predicted, growing just 0.5% through the first 3 months of 2017. Having enjoyed a run of strong gains throughout the last month the NZD is now perhaps due for a correction and a consolidated move back toward 0.71 and 0.70 are possible through the short to medium term. With a better result than expected the Australian employment data may just have been the straw that breaks the camels back of the NZDAUD cross. It has been sitting comfortably above the 0.9500 (below 1.0500) level for much of the past 2 weeks, but we now started to see it melt away. We suspect we will see further downside price action over the coming days.
 
 
United States
It was all about the Fed yesterday as the widely expected 0.25% rate hike came to pass, with rates now back at the 1-1.25% range, a level not seen since the Global Financial Crisis. Earlier in the day the market was disappointed by lacklustre US Retail sales figures and CPI data which showed a 0.1% fall in headline CPI and only a small 0.1% rise in core CPI. This gives an annualised core CPI reading of 1.7%, a drop from the previous 1.9%, this was the fourth fall in a row for the annualised figure. However the Fed shrugged this data off commenting that it was transitory in nature. Overall the Fed statement was more hawkish than expected as it maintained its view for a third hike in 2017 and aside from acknowledging the drop in inflation, which was downplayed Fed Chair Yellen, as being by attributable to one off factors, everything Yellen said was hawkish. She was bullish, talking up the improvements in the labour market and economy and shared the central bank's plans to reduce its balance sheet by unwinding asset purchases. The dollar traded sharply higher in response. The Fed also raised its GDP forecasts, lowered its unemployment rate estimates and cut its projection for inflation.  However there is some concern emerging that the Fed is tightening in an environment of falling inflation and economic data that may be taking a negative turn. Nonetheless, with the Fed looking beyond the recent weakness and seeing the need for another hike this year, dollar downside should be limited. In other US news the political situation of the Trump administration continues to be eroded by the “Russia” problem with little attention being paid to the implementation of policy. US equity markets were lower again for the fourth time in 5 days as the tech sector continued to sell-off and the Fed statement was further digested. The EUR/USD traded down to 1.1131 overnight , it is currently back around 1.1145 but a break of 1.1110 levels would extend to 1.1075 then 1.1030, we look for these levels next week.

 
United Kingdom
The political woes of the Conservatives forming a workable government continue to grind on and with Brexit negotiations scheduled to start on Monday adding further pressure. The Bank of England left rates on hold at 0.25% at yesterday’s Monetary Policy meeting, but what was surprising was a split vote as three BoE officials called for UK rates to rise, signalling that they are more concerned about rising inflation even though there are signs the economy is slowing. The GBP spiked up against both the USD and EUR after the meeting minutes were released. The MPC said inflation had picked up more quickly than expected in since its last economic forecast in May. It also commented that a further fall in the value of the pound since its last evaluation of the economy would also add to upward pressures on inflation. The minutes said there was a risk that inflation would rise "above 3% by the autumn", above the 2.8% peak the BoE had previously forecasted for the second half of the year. MPC officials noted that measures of domestically generated inflation were picking up even as economic growth slowed to 0.2% in Q1. However what was also of interest was the growth in employment was accompanied by continued weak wage growth, unemployment is now at its lowest level since 1975. The GBP/USD is currently trading lower, around 1.2781 following the release of softer-than-expected Retail Sales figures, down by 1.2% in May, following a revised gain of 2.5% in April, after a high of 1.2815 earlier this week. We expect little further action in the GBP ahead of Monday’s Brexit negotiations, next immediate support is away at 1.2750 then 1.2705...but that is next week's story.
 

Europe
The old Greece crisis was back on the table yesterday, as it avoided a summer default last night, securing EUR 8.5bio in bail-out funds even as creditors dashed Athens hopes for a more comprehensive debt relief deal. It follows a crunch meeting in Luxembourg that also paved the way for the International Monetary Fund's participation in the country's third rescue package. Eurozone officials said Greece would have to wait for “final decisions” on reducing its debt burden. However, creditors outlined a package linking relief to the country's economic performance amid tough fiscal targets for a country ravaged by recession. IMF head Christine Lagarde, said greater clarity on debt relief and efforts by the Greek authorities to implement reforms opened the door to an "approval in principle" for up to €2bn in IMF assistance, she   conceded that the agreement was a "second best solution", but ensured that the country had avoided another financial crisis. Surprisingly the Greek economy is now 27% smaller than it was in 2008. Choppy trading in the EUR/USD saw the EUR soaring to a new 2017 high at 1.1295 after the poor US inflation and retail sales data, then dropping sharply to 1.1131 after the upbeat Fed statement...we expect the EUR to continue to correct lower next week.  
 

Japan
The JPY saw choppy trading over the last 24 hours, hitting a low of 108.80 after the weaker US data releases then bouncing back to a 110.97 high last night after the Fed statement, is currently trading around 111.16 with the USD extending previous gains as the Bank of Japan kept rates on hold as widely expected. A press conference will be held later today by BoJ Governor Kuroda where he is likely to reiterate bank’s commitment to meet the 2% inflation target. Traders would want to hear from Kuroda about the QE exit strategy, with any comments about QE taper/balance sheet reduction seen to strengthening the bid tone around the Japanese Yen. A break of 111.27 would target resistance at 111.57….a break of downside support at 110.90 would expose 110.56 , but we favour consolidation at current levels to end the week.
 

Canada
USD/CAD movements have also been whippy over the last few days, after a 1.3468 high earlier in the week, it has traded down to the 1.3164 mark and is now back around the 1.3262 level. Most of this movement has been due to the heightened USD volatility, despite better manufacturing data the USD/CAD is struggling to find upward momentum and especially with the oil price (WTI) below US$45/brl the CAD will continue to make heavy work to make significant inroads on its recent losses. Immediate resistance is at 1.3300, then 1.3365. The week's low around 1.3165  is critical support, but unlikely to be tested until next week.

 
 

FX Update: Central banks in focus

Written by Howard Wilcox on June 13th, 2017.      0 comments

3:30pm(NZT)
Overview
Markets have opened the week with a more stable tone, with little in the way of major data releases, as they wait for this week’s main event, the Fed meeting on Thursday. Expectations are for a rate hike of 0.25%, but concentration will be on the accompanying rhetoric and if there is a pointer to another one or two rate increases later in the year. An indication of two further rate hikes would put the market on the back foot as while another hike is also widely expected a second hike is not currently priced-in and increased probability of such an event would likely see a jump in USD values. The fallout from the UK continues with the Conservative government looking at six-and-sevens as it struggles to create some order from the political chaos. The GBP continues to remain under pressure amid concerns that the government’s weakened position will leave it in a poor negotiating position for Brexit talks, which start next Monday. Also not helping were comments from Moody’s rating agency that the election outcome would complicate and most likely delay Brexit negotiations. The drama that is the Trump Presidency continues to roll on with lots of headlines, but little real work being done to implement policy to underpin the advancing of the US economy. Also of note is the increasing tension over the Qatar / Saudi split and subsequent Qatar boycott by several Middle Eastern states. This has had little effect on financial markets at this stage but any escalation has potential to cause market dislocation, a watching brief for the moment.
 
 
Australia
Quiet start to the week for the Australian dollar due to the holiday on Monday. After a high of 0.7565 is marginally lower now at 0.7557 but looks comfortable sitting above the 0.7500 level. This week will see Consumer confidence data tomorrow and May employment figures on Thursday which are expected to be AUD supportive. Steel prices have started to trend higher which should be reflected in the iron ore prices which would also help underpin the AUD. Solid support at the 0.7500 level which if broken would open the way for an extension to 0.7400, but we favour a range bound AUD between 0.7530-0.7585 ahead of Thursday’s Fed meeting.

 
New Zealand
The New Zealand Dollar continues to appreciate against the major currencies. With the greenback still under pressure the NZD has risen to just shy of a 4 month high trading currently around 0.7220 levels. A 0.25% rate hike is expected Thursday by the Federal Reserve and the markets have largely price this in already. Attention will be on the Fed’s comments going forward with further hikes on the horizon, With GDP data constantly being revised lower we may not see any rate excitement until  2018. Locally we have quarterly GDP data published Thursday morning with figures expected to be around 0.7% growth, if this figure is positive we may see further upside for the NZD, the next resistance level is 0.7250 and 0.7400 with support seen around 0.7050  
 
 
United States
Plenty of political news, with the fallout from the Comey testimony continuing and speculation as to what will come out of the Attorney General Jeff Sessions appearance before the  Senate Intelligence Committee tonight. It is unlikely that Sessions will divulge any explosive new details, especially since the attorney general could assert executive privilege regarding any questions about conversations with President Trump. Markets are still more interested in Thursday’s FOMC statement and how soon/whether the Trump administration’s taxation and infrastructure agenda can get back on track.
On Wednesday the May CPI report will be released. Iit is expected to remain pretty much unchanged for May with the year-on-year decreasing to 1.9%, which although marginally weaker than expected the  overall economic growth outlook remains positive and  the recent soft inflation prints should not deter Fed officials from raising rates at the Thursday meeting.
 
 
United Kingdom
The fallout continues after the shambolic election result (for the Conservatives that is…!) and Prime Minister May continues to try and form a government. The GBP as expected dropped sharply last week as soon as exit polls showed that a “hung” parliament was possible, it hit a low of 1.2633 against the USD last week, is now marginally better currently at 1.2665 but the tone remains negative and we expect this to last until a more certain political outcome is evident but this could take most of this week. The final outcome of the UK general election turned out to be that the Conservatives won 318 seats, Labour 262, the SNP 35, the Lib Dems 12 and the DUP 10. Given that none of the parties won more than 326 seats, indicating a Hung Parliament. The Conservatives lost their majority, now having even less seats than they had before the election. Conversely, the Labour Party saw an increase of around 30 seats, Labour’s dominance in the House of Commons is now expanded. Latest surveys suggest business sentiment has weakened in reaction to the election and consumer spending appears to be weakening in response to rising inflation and low wage growth; according to IHS/Visa, consumer spending fell an annual 0.8% in May, the first drop since late 2013. This is putting pressure on the PM to mitigate her “hard Brexit” approach but given her tenuous hold on power, she may have little choice. Over the next two days we have UK employment and inflation data along with May retail sales on Thursday which will provide a snapshot of how the underlying  fundamentals are tracking. There is also a Bank of England meeting on Thursday. Given that the BoE is dealing with rising inflation rates and, although they are unlikely to lift rates, there could be some relatively hawkish rhetoric following the event. Look for the GBP to suffer some bouts of volatility. Support is at 1.2630 a break of which would target 1.2550, resistance at 1.2705 unlikely to threatened over the next few days.
 

Europe
Quiet offshore trading as markets watch political developments ahead of the Central bank meetings later in the week. Overnight comments from ECB officials suggested the central bank is in data watch mode – “we are very much data-driven. We’ll discuss tapering whenever we’ll see the economic situation and the prospects of inflation ripe for discussion”. Political news centred mainly around the British election and consequent ramifications for the Brexit negotiations, but also of note was a very strong showing in the French elections for Macron’s  La Republique En Marche party which won  a huge majority in the French Parliament's  first round of voting, expected to get between 415-455 seats out of 577, a majority which will give him the mandate to force through change in the French economy. The EUR/USD remains lacklustre around the 1.1200 level with Investors looking at tomorrow's ZEW Survey results for some short-term trading direction. Economic Sentiment from Germany and the EU and the Current Situation surveys are all expected to show improvements in June, Thursday will see data for industrial production released. Better than expected readings could allow the EUR to recover some of the losses it recorded against the USD on Thursday but it may have a difficult time gathering a sustainable momentum ahead of the Fed statement. Currently the EUR/USD is around 1.1194 and unless support at 1.1080 is broken, downside looks limited, resistance is at 1.1210 then 1.1250. We expect a 1.1170-1.1210 range ahead of the US FOMC statement Thursday.
 
 
Japan
The Japanese yen was unharmed Friday after Comey testified in front of congress, the occasion turned out to be a non-event for markets. JPY posted small gains Monday against the greenback trading around the 110.00 area with producer Price Index figures published bang on expectation of 2.1%. Later in the day Japan releases the Business Survey Manufacturing Index which is a leading indicator of optimism. The economy has posted growth in the last 5 quarters, this is the first time this has happened in over a decade as Japan benefit from a strong Manufacturing sector. JPY awaits the fed announcement Thursday for further direction, we may see USD strength towards week end, we would expect support of 108.25 to be safe for now.
 
 
Canada
The Canadian Dollar made a good start to the week against the greenback pushing through 1.3400 soon after the open. Oil inventories have improved this week after supply limits last week from Saudi Arabia took crude to new lows with expectations that levels would drop by 3.1M Barrels but instead increased by 3.3M barrels . Back at 46.10 this morning has put the US Dollar under pressure, the CAD on the verge of breaking new support of 1.3250 if we see Oil prices improve further. The Bank of Canada is expected to hike rates sometime towards the end of the year as the governor of the BOC said as growth continues we can expect further consideration as to whether monetary policy stimulus is still required.
 

Major Announcements
•    Australian Trade Balance 0.56b vs 1.91b expected
•    ECB leaves interest rates unchanged
•    UK Manufacturing Production 0.2% vs 0.8% expected
•    Canadian Employment Change 54.5k vs 11.5k expected
•    Canadian Unemployment Rate 6.6% as expected

 
 

Economies of Note - 8th June 2017

Written by Howard Wilcox on June 8th, 2017.      0 comments

4:00pm(NZT)
Australia
After Tuesday’s meeting where the RBA kept rates on hold as expected at 1.5% the AUD has rallied back over 0.7500 against the USD supported by a better than expected GDP result for the March quarter. Data released showed that the economy grew by an anaemic 0.3% in the first quarter, but this was better than suggested after the poor balance of payments figure released on Tuesday. After breaking through 0.7500 the AUD extended gains to a month high at 0.7565, has now consolidated around the 0.7540 level. The RBA reaffirmed its expectations of ongoing strengthening economic growth in its Tuesday statement even though year-on-year growth has slowed from 2.4% to 1.7%, placing GDP growth close towards the bottom of the 2-3%  RBA target range That’s not a sterling result but still in positive territory giving the RBA potential for a rate cut later in the year (Q3..?). Also helping the AUD was a small 0.2% lift in the iron ore price. We expect the AUD to consolidate around current levels over the next few days but another push towards 0.7600 cannot be discounted and should attract selling interest given the Fed rate hike expected next week.
 
 
New Zealand
The New Zealand Dollar continues to strengthen Thursday reaching a high of 0.7205 during early morning NY trading. Now trading at 3 month highs the kiwi surged ahead on global risk appetite and a softening US Dollar. Global Dairy Actions Monday showed an increase of 0.6% overall the 6th consecutive rise – federated farmers chairman Haggard suggested prices should remain stable in the near future. The news boosted the New Zealand Dollar demand. James Comey testifies before congress tomorrow morning, expect the markets to hang off every word. The bearish NZD outlook remains leading into the second half of the year based on higher expected US interest rates and a stronger US Dollar overall. Resistance is 0.7250 then 0.7350 the high of 26th January 2017, 0.7050 support.  
 
 
United States
Expect trading to be choppy ahead of events for “super” Thursday, the Comey testimony, ECB meeting and UK election. There is plenty here for USD volatility! The Comey testimony is already generating headlines after the publication of his statement on the Senate website, more negative news for President Trump from Comey’s  verbal answers tonight will cause markets to negatively reassess the potential for continuation of the Trump policy agenda on taxation reform and infrastructure spending. US equity markets closed higher, as the risk-off tone seen earlier this week abated, reversing a two day price slide and oil was sharply lower, falling over 4% as an unexpected increase in US stockpiles heightened concerns that the global supply glut will continue.
Trading in the EUR/USD has been choppy trading in a 1.1282-1.1204 range overnight, currently sitting around 1.1255 and we expect USD to trade around current levels until some of tonight's news hits the wires.
 
 
United Kingdom
It’s all about the election tonight with polls continuing to show the Conservatives with a narrow lead. The GBP has continued to trade in a narrow range although trending higher and we expect a break out either way depending on the result, which should be known after early exit polls around midday NZ time tomorrow. The GBP traded up to a 10 day high of 1.2970 against the USD last night as markets punted that Theresa May’s Conservatives will win tomorrow’s election. The FTSE was lower, having its biggest fall in 6 weeks, as multinational company stocks who benefit from a weaker GBP came under selling pressure.  However the polls continue to be conflicting with six polls published on Wednesday, of which two showed the Conservatives widening their lead over Labour, two showed a narrowing and two were unchanged. If there is an increased majority for the Conservatives we could see a GBP breakout to the 1.3200 level against the USD…..tomorrow will tell..!!

 
Europe
Along with the ECB meeting, the EU will release a revision of its Q1 GDP figures tonight. This is expected to confirm that the economy grew by 0.5%  in the three months to March. A disappointing figure may affect the EUR, but a larger reaction will be triggered by the ECB decision and comments. Currently the Market has been largely pricing in a hawkish stance coming from Draghi, but such sentiment was tempered by latest flash CPI figure, down to 1.4% in May from 1.9% in April, and recent rumours of an inflation forecast downgrade. Unless Draghi mentions the end of QE being at sight, there appears to be little room for advances, particularly if the inflation forecast is actually downgraded. EUR/USD overnight trading was solid making a high of 1.1282, despite disappointing German new orders data for April, which fell 2.1%  compared to March’s 3.5% increase, but this was shrugged off as being attributable to a seasonal decline. Immediate support resistance levels are 1.1200- 1.1300, we favour continued EUR strength around the top of the range to see the week out.

 
 

FX Update: Buckle up for an eventful week

Written by Howard Wilcox on June 6th, 2017.      0 comments

3:45pm(NZT)
Overview
US equity markets opened the week off last week's all-time highs, with the USD slumping with crude oil as risk trades took a back seat and markets opened a week full of events on a cautious tone. This week will be dominated by 3 main events all occurring on Thursday, the UK election (we should know the outcome by Friday midday), the European Central Bank (ECB)  meeting and the former head of the FBI James Comey is scheduled to testify before the Senate Intelligence Committee on Thursday morning in the US. Hopefully in the UK the Conservatives will win with an increased majority, giving some certainty to Brexit negotiations. The ECB will continue with a “steady-as-she goes” policy statement (expected by the market) and Comey’s testimony will not have a “smoking gun” that destabilises (further) the Trump administration. As any one of these events have potential to add a large dose of volatility to financial markets. The US Non-farm payroll data on Friday was a major disappointment well below expectations of 180-185K coming in at 138K jobs created in May, although the unemployment rate dropped to 4.3% from the previous 4.4%. However consensus remains that the Fed will go ahead with a 0.25% rate hike next week, although the probability for another hike in  September is now much more data dependent.
 

Australia
After Friday’s lacklustre US jobs report the Australian dollar staged a comeback rising to a high of 0.7497, it opens this morning around 0.7486 in a consolidative mode ahead of this afternoon’s RBA statement. Also helping the Aussie dollar were better Chinese PMI results yesterday that allowed the AUD to consolidate the moves higher made on Friday. Market expectations are for the RBA to keep rates unchanged at 1.50% as reports since the RBA's last meeting show strong employment gains and a surprise rebound in retail sales. However the counter to this has seen construction has being softer and wage growth remaining stagnant. Also the first signs in 18 months in May of a cooling off in house prices make a rate cut more likely in the September quarter as the RBA has more time to gather further data over the intervening period. Given the moves over the last two days 0.7500 is the immediate resistance level which if broken would likely see some short covering which should push the AUD into the 0.7540/50 region with next resistance level up at 0.7485. On the downside a pullback below 0.7460 would target support around 0.7430/35 which if broken could extend down to the 0.7400/0.7390 mark. Just released is news that the Aussie current balance is much worse than expected at -3.1bln against an expected -0.5bln, net exports were also substantially lower suggesting a potential downgrade of around 0.7% for tomorrow's March quarter GDP. The AUD has sold off around 35 pips to 0.7455 on this news.

 
New Zealand
The New Zealand dollar pushed back through 0.7130 during early morning trading back in favour with investors again after weaker US data was published. We need to go back to early February to view NZD interest at these levels, the bullish channel from the low of 0.6815 still remains in place. Non-Farm Payroll and Manufacturing numbers were both weaker than expected Friday. The main focus over the next few days will be on the Fed Rate announcement, with good gains in employment and wage growth this supports a June 15th hike but hardly gives them any long term excitement and urgency with inflation lower than the targeted 2%.  Global Dairy Trade Auctions are held overnight with expectations of continuing recent momentum in prices to the 9 dairy products. NZD remains solid over 0.7100 with view of possibly returning to 0.7250 resistance in the short term..   
 
 
United States
The disappointing NFP jobs data on Friday was slightly tempered by the small drop in the unemployment rate from 4.4% to 4.3%, however this could not prevent the US dollar dropping against all its major trading partners. Although significantly below market expectations the payrolls report has not derailed expectations of a 0.25% Fed rate hike next week but it has cast doubt over the extent of any further tightening going into the 3rd and 4th quarters of this year.
The testimony by ex FBI Director Comey will hopefully for the Trump administration, not contain any major revelations as this would continue to further divert attention away from the administrations next policy thrust of increased infrastructure spend which has been one of the pillars of the “Trump bump” equity rally over the last few months. Other US data releases for ISM non-manufacturing, factory and durable goods orders were also softer but had little immediate effect on the market. The USD opens at lower levels against both the JPY and EUR and we would expect little major movement ahead of Thursday as markets await results of the UK election, ECB meeting and the Comey testimony. Look for the EUR/USD to trade  around 1.1250 over the day with risk  towards the upside,  a break beyond 1.1300 is still required to confirm a new leg higher, while a break below 1.1180 will probably see a downward corrective extension  to the 1.1120 region.

 
United Kingdom
A mixed start to the week with the FTSE equity index tracking lower yesterday ahead of a critical week in the UK, Eurozone and US. UK services sector growth was lower on Brexit fears  and another significant poll was released alongside the disappointing PMI services figures. After strong manufacturing and construction PMI readings last week, yesterday's  sharp deterioration in the services reading highlights what could be the new norm as services firms shift their emphasis away from the UK in the wake of article 50. While firms may not be laying off workers, there is a feeling that we will see banks begin to build out their regional offices in response to the UK’s impending departure from the EU. Another poll result, this time YouGov, speculating that despite a likely Tory victory, they could fall short of the 326 required to for a majority government. Given the wide range of poll results, it is clear that the industry is coming under pressure once more in the wake of failures in both the EU referendum and US election. After the weekend’s attack around London Bridge, the main political parties are clearly seeing this renewed focus upon security as an opportunity to prove their mettle, with Corbyn calling out May’s policing record as home secretary. While Theresa May seems to have adopted a more steely resolve than before, this seems a like too little too late given her track record of cutting police numbers over the years…
Possible UK election scenarios;
•    May wins ; if a majority over 125 seats this would be positive for Brexit negotiations and likely spur a rally of the GBP over the 1.30 against the USD….stock market would move lower as the higher GBP impacted UK corporate returns….majority 70-125 seats little change as already priced in….majority under 70 seats, drop in GBP .
•    Corbyn wins; sharp sell-off in the GBP probably down to the 1.25 level, stock market would rise as corporate earnings would initially increase with a lower GBP.
 

Europe
The ECB meeting on Thursday is expected to have an outcome of rates staying on hold, but there are expectations that comments will feature around the projected time frame for tapering stimulus measures as the Eurozone economy gradually continues to improve. The EUR was the main benefactor of the weaker than forecast US NFP on Friday, trading up to multi-month highs at 1.1284. It is now sitting around 1.1268 but risk remains towards the upside, with a break above 1.1300  required to confirm a new leg higher, while a move below 1.1180 will probably see a downward corrective extension down to the 1.1120 region. There are retail sales data for May due tonight, but we expect consolidation at around current levels ahead of Thursday’s ECB meeting.
 
 
Japan
The Japanese yen charged ahead against the USD Dollar Friday on weaker than expected non-farm payroll data . Markets were expecting a solid figure but with numbers showing an increase of 131k jobs in May this was well short of expectations and dropped the US across the board. ISM Non- Manufacturing figures also pointed to a slowdown in the services sector falling to 56.9 points based on an estimated 57.1 The Yen rallied off the back into territory not seen since late April blowing aside resistance of 110.60 to post a low of 110.30 late during NY session. JPY should continue to strengthen this week with investors moving back into the safe-haven trade with US Trump political issues still to be settled with Russia. Support still around the 109.80 and 108.120 with resistance at 112.10 and 114.35
 
Canada
The Canadian dollar weakened last week against the Greenback closing the week just shy of the 1.35 area. Oil has not helped Canadian Dollar prospects coming from 49.50 late May to weaken off 2% to trade at 47.50 this morning. The CAD continues to trade in a tight range as it waits for testimony from James Comey this week around Russia/ Trump links. Toronto real-estate is cooling if you read into the latest figures which show less sales, Toronto growing at 14.9% year on year, further housing data is due this Friday with New Home Sales. This week could see a push for the late May low of 1.3400 a continuation of the bearish trend from the high of 1.3800 late April. Friday sees Bank of Canada Stephen Poloz speak about the Canadian Financial System.
 

Major Announcements
•    Canadian GDP 0.5% vs 0.3% expected
•    Australian Private Capital Expenditure 0.3% vs 0.4% expected
•    Australian Retail Sales 1.0% vs 0.3% expected
•    UK Manufacturing PMI 56.7 vs 56.5
•    US ISM Manufacturing PMI 54.9 vs 54.7 expected
•    UK Construction PMI 56.0 vs 52.7 expected
•    US Non-farm Payrolls 138k vs 181k expected
•    US Unemployment rate 4.3% vs 4.4% expected
•    UK Services PMI 53.8 vs 55.1 expected
 

Economies of Note - 2nd June 2017

Written by Howard Wilcox on June 2nd, 2017.      0 comments

4:20pm(NZT)
Australia
The Australian dollar had a good and bad day yesterday with choppy trading in a day dominated by data. The release of Australian April retail sales which were better than expected, showing a 1% growth for the month saw the AUD climb to 0.7453, but then was battered down to 0.7372 after Chinese manufacturing PMI figures came in at 11 month lows and iron ore prices continued to fall hitting an 8 month low. Next week will see the RBA rate decision on Tuesday, expectations are for no change but as always the wording around the statement and any forward guidance given by the RBA will be closely analysed. Currently the AUD is trading around 0.7378 and should trade sideways at current levels ahead of tonight's US jobs figure. Next major support is 0.7340 a break of which would then probe the sub 0.7300 level to test 0.7280. The downside is favoured for moves next week.
 
 
New Zealand
The New Zealand dollar ends the week in a strong position having rallied solidly against the Australian dollar after it fell into the Chinese data hole yesterday. The NZD made a high of 0.9574, the highest level since February, it is currently trading around 0.9560 and with underlying fundamentals continuing to be NZD supportive on this cross a move to 0.9600 cannot be discounted. However we are getting close to previous historic highs and at these levels there is value in buying AUD as further NZD upside will be tougher at these rarefied levels. From a NZD/USD perspective gains over the week have also been solid, but the NZD has eased back as the good US ADP jobs figure overnight boosted expectations for tonight's NFP jobs data, although the NZD will come under pressure if the jobs figure is better than expected, hard to see too much downside in the Kiwi in the short term.
 
 
United States
Solid data releases this week showed that the US economy continues to power up and a rate hike from the Fed at its June 14th meeting is almost assured. US equity markets rose to fresh new highs overnight as the ADP jobs report showed private sector employment in the U.S. increased by 253,000 jobs in May, well above market consensus of 185,000, increasing expectations for a strong NFP reading tonight, this may now be in excess of 200,000, the unemployment rate is expected to remain at 4.4%, which would confirm a 0.25% Fed rate hike in June. Also released last night was the US ISM manufacturing index for May, which beat April’s reading, rising to 54.9 from 54.8 better than expectations which had been for the index to hold steady. This data from the US manufacturing also points to continuing solid growth.
The USD  strengthened after the ADP data with the EUR/USD falling back to 1.1250 , if tonight’s NFP is 185k +,  look for a more pronounced USD bump higher, with the EUR/USD falling to the 1.1160 level which if broken could see an extension to 1.1080.
 
 
United Kingdom
The news for Theresa may continue to get worse as Opinion polls show continuing erosion of the Conservative lead as the Labour party gains support, her lead is now into low single digits after being 22 points ahead only 2 weeks ago. The GBP has endured choppy trading dropping to a low around 1.2829 against the USD on election jitters then bouncing back to 1.2901 after release of robust UK manufacturing PMI data. Markets are in a quandary, caught between a temptation to panic at the tightening election polls and the knowledge that polls have proven to be fairly inaccurate in both the last US and UK elections. The GBP is now trading around the 1.2890 level and with the UK election  now under a week away (next Thursday) and although tonight's US NFP  data will have an influence, we expect sideways trading within the 1.2800-1.2920 range, with a clear break below 1.2760 required to confirm a bearish move lower.  As long as the 1.2800/1.2920 range persists, little could be expected ahead of elections, with a clear break below 1.2760 required to confirm a bearish extension.
 
 
Europe
Eurozone economies continue on the gradual improvement track although inflation is still subdued. Next week's April retail sales and GDP Q1 for the Eurozone region will give a better pointer as how the recovery is going. The release of May Eurozone inflation data disappointed expectations, with core CPI coming in around 0.9% y-o-y down from the 1.2% seen in April. The ECB may waver on dropping forward guidance at its meeting next Thursday, but interest rates are expected to be left on hold. Tonight’s US jobs data will provide direction for the EUR and we expect the pressure to come on the 1.1080 level if a good result.
 
 
Japan
In comments from the Bank of Japan, “ the Japanese economy continues to expand and maintain growth at a pace above its potential, mainly through fiscal 2018, on the back of highly accommodative financial conditions and the effects of the government's large-scale stimulus measures, with the growth rates in overseas economies increasing moderately.” With this in mind there is little likelihood that the BoJ will exit its stimulus policy anytime soon as projections are for the economy to continue to expand over 2019 although  the growth pace  is projected to decelerate due to a cyclical slowdown in business fixed investment and the effects of the scheduled consumption tax hike.  The USD/JPY has squeezed higher to 111.60 and a break of 111.85/95 would target 112.15.
 

Canada
Canadian data released yesterday saw solid growth in manufacturing output , new orders and employment. This buoyed the CAD also helped by higher oil prices. The USD/CAD rose to a high of 1.3516 then pulled back around 40 pips to the 1.3470 level and is currently pushing back towards last night's highs around 1.3514. Look for consolidation at current levels as we head into tonight’s U jobs figures.


 
 

FX Update: A quiet start to the week

Written by Howard Wilcox on May 30th, 2017.      0 comments

4:15pm(NZT)
Overview
Last week ended on a mixed note as although the S&P 500 closed on Friday at an all-time high, there was negative news, with Hong Kong receiving a credit rating downgrade from Moody’s from Aa1 to Aa2, this followed a cut, for the first time since 1989, in China’s debt rating on Wednesday. A shortened trading week due to the US Memorial Day holiday yesterday will give traders a lot to digest over a reduced period as a raft of economic data is released this week. Markets are pricing in an 80% chance of a Fed rate hike in June but as always data is key. Later tonight will bring US personal consumption expenditure index data, the central bank’s preferred gauge of inflation. Wednesday will bring initial jobless claims and ADP payrolls, a day later traders get manufacturing survey results, and the week culminates with monthly Non-Farm payroll data, the bright spot of the economy. These figures will help set expectations for whether the Fed will raise rates as Fed officials forecast back in March. With President Trump back in the White House after his overseas sojourn there is likely to be more ongoing drama (tweeted  or otherwise) , but markets are looking for refocusing on the Administration’s  tax and infrastructure polices to get back on track .
 
 
Australia
Quiet trading in the Australian dollar overnight within a narrow 0.7425-0.7450 range. Building approval data for April is out later today and while it is expected to be up  around 1% , certainly better than March’s -13.4% but approvals continue in a downturn . Concern is also growing that further Chinese data will be weak thus capping any potential for a higher Australian dollar. April retail sales figures on Thursday will be closely watched. The tone for the AUD remains largely negative as softer commodity prices undermine support and the lower holiday volumes to some extent have helped the AUD hold its current levels. If this week's US data releases are solid prepare for more downside in the AUD with support at 0.7330 coming under pressure. Immediate support is at 0.7420 a break of which would see an extension towards 0.7365.
 
 
New Zealand
The New Zealand dollar was quite during early week trading as the US Dollar took a break with US Memorial Day. Overnight the kiwi climbed to a two month high of 0.7088 but was soon back trading at Monday’s open of 0.7035 after traders cashed in with profit taking during thin markets. The odds of a Fed rate hike is still high one key indicator is the Core PCE (Personal Consumption Expenditure) which prints tomorrow and shows only individual consumption a key inflation measure for the Fed. With this in mind if the reading shows April figures are approximately 2% this will increase the chances of a June 15 hike in rates. A quiet week locally with just the RBNZ Financial Stability Report to print Wednesday, this will give us a broad View of the NZ economy’s health highlighting areas such as interest rates, inflation and overall economic conditions. A plethora of US data is to be released over the coming days including Non-Farm payroll figures Friday. The NZD technically is showing higher highs and higher lows suggesting its comfortable sitting above 0.7000 previous resistance. Past current levels we have thin air to 0.7230 the high of 23rd February 2017, expect a bumpy ride towards the end of the week..
 
 
United States
With Trump back in town hopes will be for his policy agenda to get kick-started, particularly around infrastructure spending and tax, but given recent history we are doubtful if we see any positive moves anytime soon…!! Emphasis for the US is all on the major data dump this week. Expectations are that this week's data will show a US economy that continues to improve and we expect Friday’s NFP increase should be around 190,000 jobs for the May period with the unemployment rate remaining steady at 4.4%. This would maintain the course for a rate increase by the Fed at its meeting on 15th June. What does all this mean for USD levels? White House distractions aside, the US economy should look to being very much to be back in the grove if this week’s data is positive, if this is the case it will confirm our concerns that the USD is undervalued at current levels and that the increasingly divergent paths by the Fed vis-a-vis other Central banks (especially given the ECB president’s comments yesterday) point to the EUR/USD heading back to the sub 1.0800 territory over the next 2 months.
 

United Kingdom
A tough week for the UK last week for Prime Minister May as the suicide bomber in Manchester was a cold reminder that the terrorism scourge is persistent and then there is the matter of the economy. First quarter GDP growth was slashed from its initial estimate of 1.2% annualized to 0.7%, largely on the back of weaker net trade (so much for a weak pound’s helping hand) and slower consumer spending (some of that due to higher inflation) also, the CBI reported that British retail sales fell to a four-month low in May. The upcoming election is now not looking as rosy for the Conservatives as first indicated, it is now just is just two weeks away (June 8th) and the Conservatives lead over the Labour Party in the polls has narrowed to just 5 % according to one poll, the smallest since  April 2016. Just a week ago, the Conservatives had a 9-point lead, and 18 points two weeks ago! Not helping were the headlines on the U-turns made by PM May, such as backtracking on the “dementia tax”. Let’s not forget our old friend Brexit. EU leaders have unanimously agreed that the exit bill would total €100 bln gross, or €55 bln-to-€75 bln net, an amount so incredibly high that Brexit Secretary David Davis has threatened to quit the talks before they even begin. The ECB’s Constantio effectively dismissed a Brexit impact on the Euro Area economy. He acknowledged that “of course Brexit is very significant for the UK, but in view of the relative size it is much less meaningful for the rest of the EU”. It will certainly not strengthen Britain’s ability to negotiate if the issue is dismissed for being not meaningful.
 
 
Europe
Economic data for the Eurozone continues to improve, but comments from ECB President Draghi in his testimony before the European Parliament yesterday, that the euro area still needs expansive monetary stimulus to restore stable inflation even as its economy accelerates caused the EUR to soften. He went on to say “We remain firmly convinced that an extraordinary amount of monetary policy support, including through our forward guidance, is still necessary,” Draghi told lawmakers on Monday in Brussels. “Domestic cost pressures, notably from wages, are still insufficient to support a durable and self-sustaining convergence of inflation toward our medium-term objective.”
So essentially more of the same for a while, (read until at least year-end),  in the  ECB stimulus policy which will mean that  key influences of EUR levels will fall back to US Fed interest rate policy and US economic data releases. The old Greece problem reared its head again overnight, on reports that the Greek government is preparing to possibly go without next bailout payment (amount of EUR 7bn) if creditors cannot agree on debt relief...this saw the EUR drop back around 30 points against the USD. Look for the EUR to come under renewed pressure this week if US data continues to be positive, a move to 1.1080 is expected and if the EUR/USD returns to sub 1.1000 territory look for a deeper extension towards   1.0850.
 
 
Japan
The Japanese Yen showed little movement trading in a narrow range during Monday’s session with US markets closed for Memorial day. The stronger global economy has strengthened support for Japanese products of late with GDP first quarter expanding at an annualised rate of 2.2%. Markets are not expecting the Bank of Japan to tighten its monetary policy in the foreseeable future despite an economy which seems to be moving forward. Later today we have Household Spending, Unemployment rate and Retail Sales. The long range target is still 108.00 with the pair consolidating around 111.00 we may see further strength develop in the Yen, 110.20 the previous low the immediate target this week.
 
 
Canada
The Canadian Dollar made its second successive weekly gain coming from 1.3530 levels to close the week at 1.3450. A slow start to the week with US Memorial Day has seen little volume traded. US political risk has put the US Dollar under pressure of late as speculation has surfaced that there may indeed be a Russian connection, a good chance we may yet see the Canadian Dollar back trading at the early April low of 1.3220. This week the most significant data release is the Current Account with the release of the Fridays Trade Balance likely to be overshadowed by the US Non-farm Payroll release.
 
 
Major Announcements
•    The Bank of Canada leave rates unchanged at 0.5%
•    UK GDP Second Estimate 0.2% vs 0.3% expected
•    US Core Durable Goods Orders -0.4% vs 0.4% expected
•    US Prelim GDP 1.2% vs 0.9% expected

 
 

Economies of Note - 26th May 2017

Written by Ian Dobbs on May 26th, 2017.      0 comments

12:45pm(NZT)
Australia
We have only had some minor second tier data released from Australia this week and it’s had little effect on the markets. The CB leading index increased 0.5% up from 0.4% prior, while construction work done disappointed printing at -0.7% vs -0.5% expected. The Australian dollar has struggled to maintain a firm footing this week undermined by Moody’s downgrade of China on Wednesday and soft commodity prices. It heads into the end of the week feeling a little soggy. Next week's data will be of more interest with building approvals, private capital expenditure and retails sales all set for release.
 
 
New Zealand
It’s been a very quiet week data wise from New Zealand. We did get the trade balance on Wednesday which came in much stronger than forecast and that helped to support the NZ dollar somewhat. NZ produced a trade surplus of 578m in April driven by dairy, wood and wine exports. This was the largest trade surplus since March 2015. Fonterra released their revised milk price forecasts lifting it 15 cents to $6.15/kg for the 2016/17 season. For 2017/18 they are forecasting a pay-out around $6.50/kg. These sorts of numbers will make pleasant reading dairy farmers and rural economies in general. Yesterday’s government budget release drew plenty of media attention, but there was little impact in the market. There are never any real surprises in the budget detail these days and yesterday was no different. In an election year the government was always going to what it feels is just enough to get re-elected, and that’s certainly what this budget felt like. The NZ dollar has had a relatively solid week making gains across the board. It is now however at reasonably healthy levels against a number of other currencies and any further potential gains will be much harder fought with key resistance levels not far away. Next week is another quiet one with only building consents, business confidence and the RBNZ Financial Stability Report of any note.
 
 
United States
The US dollar has seen some pressure this week weighed on by mixed data and the Federal Reserve minutes. The minutes showed the Fed believe another rate hike relatively soon would be appropriate, but that it would also be prudent to wait for evidence that the recent slowdown in economic activity is indeed transitory. So while a June interest rate hike is still well on the table, if we got a series of soft releases between now and then they may decide to hold off. Currently the market is pricing in around an 80% chance of a June hike. Tonight sees the release of some key data with Core Durable Goods Orders and Preliminary GDP set to hit the wires. Monday is a US holiday so next week will start off slowly, but later in the week we have consumer confidence numbers, manufacturing PMI and non-farm payrolls data.
 

United Kingdom
The tragic events in Manchester this week have been the main focus for the UK with economic releases taking a back seat. The GBP has struggled for direction and remained largely range bound against the USD. It has however underperformed against the NZD and AUD. Revised first quarter GDP for the United Kingdom was released last night and it came in a touch lower than forecast at +0.2%. Expectations were for a result of 0.3%. While election campaigning was suspended in the wake of the Manchester bombing, the latest YouGov poll show’s PM May’s lead down to 5 points with the Cons at 43 and Labs 38. The June 8 elections is likely a one horse race, but the margin of victory may not be as great as first thought. This could pressure the GBP somewhat. Next week is pretty quiet on the data front with just manufacturing and construction PMI’s of any note.
 
 
Europe
Europe economy continues to improve and PMI data this week has served to underscore that. Solid results from the manufacturing and service sectors have helped to support the Euro, as did the German IFO business climate survey which increased to 114.6 from 113.0 prior. ECB President Draghi spoke this week and he moved to pour cold water on any speculation that the central bank could change it current policy setting any time soon. The central bank is determined to fully implement its quantitative easing programme which involves 60bln of purchases each month through to the end of the year. Draghi also reinforced the view that although economic growth is finally progressing nicely, underlying inflation remains low and that allows them all the room they need to continue with QE. Next week's economic calendar contains a raft of second tier releases with the main focus likely to be the flash CPI estimate out on Wednesday. Draghi is also set to speak again, although the tone of his comments is unlikely to differentiate from this week.
 

FX Update: Commodity recovery helps drive NZD and AUD higher

Written by Howard Wilcox on May 23rd, 2017.      0 comments

4:00pm(NZT)
Overview
A quiet open to the week with little economic news and with President Trump “on-tour” the bad news eroding USD confidence has temporarily taken a back seat. US stocks rose for the third day boosted by President Trump’s trip to Saudi Arabia that saw trade deals announced across the defence, energy and infrastructure sectors, lifting industrial shares such as Boeing, Raytheon and 3M. Crude pushed to a one-month high before OPEC meets later this week.
A more “risk-on” tone is now evident in financial markets, returning after political turmoil on a daily basis in Washington rattled investors and saw stocks have some the biggest declines since last September. This week is light on major releases, there are several speeches by US Fed officials and ECB officials and of course the release on Thursday of the NZ Budget. Not much expected in this document to move markets as given that it is an election year, focus will be on “steady-as-she-does” with some social spending thrown in to give a feel-good election feeling.


Australia
The Australian dollar begins the week on a more positive note holding well over the pivotal 0.7400 level against the USD. Firmer oil prices, a rise in the gold price and taking a more positive view on risk have seen the AUD up at a 2 week high at 0.7486. A continued positive momentum in equities and commodities should be AUD supportive, with potential to push the AUD to target 0.7500 then beyond. There is little in the way of local data this week, so moves will be largely offshore driven. Any pullback should attract buying interest around the 0.7430/35 mark.


New Zealand
The New Zealand Dollar closed the week in a positive mood coming off its recent low of 0.6820 to close around 0.6920 levels. Risk appetite continues to drive the NZ Dollar higher, investors happy to take on further risk with chances increasing the Fed may not raise rates on June 15th With continued Trump administration diversions going on and weaker recent inflation figures this has rocked the boat somewhat, having said that the Fed will probably still press ahead with hiking. Weekly data locally is light except the Annual Budget release on Thursday. The kiwi traded through 0.7000 earlier in the day the monthly high and is firmly out of its recent trading range. Breaking upside on the 50 day moving average it looks to 0.7050 resistance for further gains.


United States
US markets have calmed with the President away “on tour”, as political turmoil has been dialled back, awaiting his return!  Investors have adopted a more risk -on tone as focus moves back to the economy and the chances of a Fed rate hike early next month. The weaker USD over the week or so has been a direct result of the “Trump trade” unwinding as the continual political scandals around his administration reduce the chances of his infrastructure and spending policies passing through Congress, rather than any deterioration of the US economy. Data figures continue to remain supportive. The EUR/USD continues to trade higher and after breaking resistance at 1.1170 rallied to a new high for the year at 1.1262 after German Chancellor Anglea Merkel commented that the ECB was responsible for EUR weakness after referring to the German trade surplus, it has since dropped back around the 1.1242 mark. Potential now exists for the EUR/USD to extend its advance to the 1.1300 level, last seen early November.  Further gains will likely see the pair reaching the 1.1340 region over the next day or so. Conversely a correction would take place on a break below 1.1160, with scope then to revisit the 1.1080 region.  


United Kingdom
The UK election campaign grinds on, dominating the news as the June 8th polling day approaches. Polling surveys still show the Conservatives holding a solid lead, however this lead has halved from 18% over the last week after the publication of the party’s manifesto last Thursday was seen to damage the Tories’ electoral prospects causing a drop in the GBP. This was later reversed as PM May, did a U-turn and back pedalled over potential social spending cuts in her party's election manifesto. The horrific news today of a terrorist bombing at a music concert in  Manchester that saw 19 fatalities is just 15 days away from the general election polling day  and the risk for the pound from here is whether this will delay the campaigning as the UK remains at the second highest level of security. The GBP/USD started the week with a negative tone, but persistent USD weakness helped the GBP/USD pair to regain the 1.3000 level, in spite of Brexit turmoil. The pair gapped lower overnight, knocked by Brexit's minister Davis, who said that the UK can leave the negotiation table should the EU insist on the payment of a Brexit bill of around €100 billion. The pair fell to 1.2965 before stabilizing, it is now back around 1.3000 . We anticipate sideways trading heading into election day holding within a 1.2960-1.3100 range.


Europe
Eurozone data continues to show improvement and this allied with continued USD weakness, mostly around political ructions, has seen the EUR continue to firm over the last week. That old chestnut Greece is back on the front burner for the Eurozone bloc with news that while Eurozone finance ministers may agree to release new loans to Greece, they are likely to struggle to convince the International Monetary Fund to join the bailout by keeping the prospect of debt relief for Athens highly conditional. Debt relief was one of the IMF conditions. Greece needs new cash from the euro zone to avoid a default in July when it has to repay some €7.3bn worth of maturing loans. To get the money, the Greek parliament approved pension cuts and tax hikes last Thursday. For the IMF to join the bailout it wants the euro zone to commit now, more firmly and in greater detail to debt relief for Athens, even if it were to happen only in 2018. This would be difficult to swallow for Germany, which faces elections in September, and several other countries, which all want to retain some leverage over the Greek government to make sure it delivers on all the promised reforms until 2018. Also in overnight trading, Germany's Chancellor Angela Merkel argued that the "too weak" EUR was to blame for the contracting trade surplus in Germany, boosting the demand for the shared currency. Some market analysts suggest that the narrowing Germany-U.S. yield spreads are helping to support the euro.


Japan
The Japanese yen has shown little movement in this week’s trading after gaining over 200 points on the US Dollar last week. The yen opened around the 111.00 area before giving up early gains and trading back at 111.50 after poorer than expected Trade Balance data.  The ministry of finance reported a surplus of 481.7 Billion from a surplus of 614.7 Billion as imported growth outstripped exports. The safe haven trade has been attractive recently with investors as the continuing troubles in the US remain.  With little Japanese data to be released this week direction will be driven by US, in particularly the Fed reserve speeches. With the USD still looking venerable price direction could be limited to resistance at 114.00 with prospects of support at 108.00 being tested.


Canada
The Canadian Dollar closed at 1.3510 for the week a big mover against the greenback picking up over 210 points. Canadian data was mixed with CPI and Core Retail Sales both missing expectations Friday, markets choosing to ignore the data the pair rallying to 1.3500 during late NY trading. The continued rally in Crude Oil played a large part, this morning’s price reaching $51.40 a barrel a long way from $47.00 the recent low. With continued Issues in the Trump administration weighing on markets we suspect the Canadian dollar may make a push for 1.3440 support, following this it may have a look at the prior low of 1.3280 of mid- April 2017. Bank of Canada will announce their cash rate announcement along with the statement Thursday with no move on the current 0.50% expected.


Major Announcements
•    US Building Permits 1.23m vs 1.27m expected
•    NZ PPI 0.8% vs 0.7% expected
•    UK Average Earnings Index 2.4% vs 2.4% expected
•    Canadian Manufacturing Sales 1.0% vs 1.1% expected
•    Australian Employment Change 37.4k vs 4.5k expected
•    UK Retail Sales 2.3% vs 1.2% expected
•    Canadian CPI 0.4% vs 0.5% expected
•    Canadian Core Retails Sales -0.2% vs 0.2% expected

 
 

Economies of Note - 19th May 2017

Written by Howard Wilcox on May 19th, 2017.      0 comments

4:00pm(NZT)
Australia
Data and news out later in the week was better for Australia and saw the Australian dollar rise over the old AUD/USD resistance level of 0.7400 soaring to a high of 0.7465 yesterday. On Wednesday, ratings agency Standard and Poor's confirmed Australia's AAA credit rating, however it continued to leave the nation on negative watch, and suggesting that  the Turnbull government may struggle to return to surplus by the forecasted date of 2020-21. Also positive and unexpected was yesterday’s fall in the April unemployment rate to 5.7% its lowest level in four months, expectations had been for a figure steady around 5.9%. However the increase in job numbers came from part-time employment, which soared 49,000 while full-time employment fell by 11,600. It was a mixed report that augurs poorly for a much-needed revival in wage growth and inflation. Poor fulltime employment figures continue to weigh on the AUD and the AUD was unable to hold the higher levels, selling off overnight against the rebound in the USD. Currently trading around 0.07420 and should hold above 0.7400 to end the week, but only a break of 0.7510 would indicate a bullish trend.


New Zealand
It’s been a positive week data wise for the New Zealand economy, although the NZD has really struggled to make significant gain on the back of the releases. Monday saw much better than forecast retail sales data which printed at 1.5% vs 1.1% expected. This was followed by another solid dairy auction on Tuesday night with prices up just over 3%. That’s the fifth consecutive rise. Many forecasters are now revising up their forecasted pay-outs for the 2017/18 season to $6.50 - $6.75/kg MS. Producer prices on Wednesday also came in a touch stronger than expected at 0.8% for the quarter. Earlier today we got another reminder about how attractive the NZ economy is with migration figures continuing to run at record levels. Net migration in the year to April was a gain of 71,885. The New Zealand dollar has been somewhat lethargic in the face of the strong economic releases and continues to trade within recent ranges.


United States
It has been a difficult week for the US where political turmoil has outweighed any economic data. The Trump trade reversed sharply on Wednesday as equity markets took fright over the possibility of Trump’s impeachment had increased, thus potentially derailing his tax and infrastructure spending policies that would lead to a boost for growth and inflation, selling off sharply on the biggest drop since last September. The USD followed suit and the EUR/USD reached 1.1170, the lowest level for the USD since early November. However overnight buyers emerged for the USD and US equities as data released showed  jobless claims and regional manufacturing figures beat forecasts, adding to signs economic growth is on firm footing and that the widely anticipated move by the Fed to increase rates next month remains on-track.  Politics should (hopefully !) take a back seat next week as President Trump heads overseas, also the appointment of a special counsel to head up the FBI's investigation into Russia's attempt to influence the US election, appears to have acted a circuit breaker of sorts. It may not be sufficient to boost confidence that the Trump Administration's economic program is back on track, but it looks to be is sufficient to stem the tide for the moment leaving markets to go back to be more data driven.


United Kingdom
Sold figures out yesterday for April retail sales, which were up 2.3% over March, double that expected and 4% higher year-on-year. This saw the GBP soar over 1.30 against the USD to the highest level in 8 months. However the FTSE100 extended losses after the retail sales news as the stronger GBP is negative for many of its listed corporates who earn USD denominated income. Commodity based stocks and financials led the downward move. Also adding to the positive tone was news that UK unemployment had fallen to its lowest level in 40 years, although this was tempered by the fact that wages in real terms were falling due to inflation and subdued wage growth. The GBP has failed to hold the higher levels and has now drifted back under 1.30 to 1.2950 on the stronger USD rebound. Support is at 1.2900 with resistance at 1.2995 then 1.3040..look for consolidation at current levels to begin next week.


Europe
The Eurozone economy continues to show signs of improvement, with German economic sentiment index results out this week showing that investors and analysts do not see an end to the current growth in the German economy anytime soon.The EUR/USD has had a good week, climbing to highs around 1.1170 on the US political turmoil however price action was choppy last night with the pair breaking back below 1.1100 and nearing 1.1080, on market talk, that there was no obstruction to justice in the Flynn case, therefore clearing US President Trump from a possible impeachment. There is apparently a video from May 3rd, in where former FBI director Comey said under oath and before the Senate Judiciary Committee, that "he has not been pressured to close an investigation for political purposes." The coming week should see less volatility on this cross given President Trump is “on tour” but further political ructions are likely and this should favour the EUR allied with continuation of positive Eurozone data…..1.1260 long term resistance is now in play over the coming weeks.

 
Japan
The Japanese yen has traded significantly higher against the US Dollar throughout the week as the carnage in Washington occupies the headlines. The Trump government remains on the back foot with the “Russian probe” fiasco expecting to last a while- perhaps months. JPY started the week at 113.20 but was soon falling like a stone through key support levels of 113.00 and 112.00 as risk appetite took hold, the pair reaching 110.50 during early morning trading. Japan’s economy continues to thrive with figures showing growth for the first quarter at 2.2%, the country has expanded for the 5th straight quarter, its longest run in over a decade.


 
 

FX Update - US data mixed, while equities trade like they don't have a care in the world

Written by Howard Wilcox on May 16th, 2017.      0 comments

4:00pm(NZT)
Overview
Markets traded sideways with little direction on Friday awaiting the US CPI and retail sales data. When released the results were mixed; CPI figures rebounded for April (up 0.2%) although year-on-year at 2.2% lower than an expected 2.3%. April retail sales were lower than forecasted, up 0.4% (expected 0.6%) raising some concerns that Q2 is not seeing continuing positive momentum.  With confidence knocked on the data release, US equities and the US dollar moved lower as speculation weakened around the odds of a June Fed rate hike. However it should be pointed out that the numbers weren't that bad, they just failed to be as good as anticipated and we believe that the Fed is still on course for a June rate hike. Housing starts and Industrial production data for April due out later tonight should reaffirm this track. Chinese data releases were also mixed, with retail sales coming in better than expected at 10.7% yoy but industrial production lower at 6.5% yoy against expectations of 7.1%. This was negative news for the Australian dollar, which yesterday again backed away from the AUD/USD 0.7400 level. Overnight has seen all major US equity markets rising to new highs as energy, financial and materials shares posted solid gains as crude oil prices jumped 2% as Russia and Saudi Arabia, two of the largest producers, announced that they would extend by 9 months, a production output cut deal already in place.


Australia
After last week’s budget consumer confidence has plunged to its lowest level in nearly two years. The ANZ-Roy Morgan Consumer Confidence Index for the week to May 16 has slumped 2.6 points to 109.4, which is its lowest level since September 2015, although the indicator still remains above the 100-point level separating optimism from pessimism. However wages data tomorrow is expected to provide little relief, with private sector wages growth expected to show record low wages growth of just 1.7 % in the year to the March quarter. The rise in crude oil and gold prices over the last 2 days has helped push the AUD/USD back over the 0.7400 level, but given the disappointing Chinese data regarding increasing iron ore stockpiles (up by nearly 2%)  and prices  continuing close to all-time lows , the Aussie dollar remains the worst performing of G-10 currencies for the quarter. RBA minutes just released, show that the RBA still has concerns over the housing and labour market, which they comment requires “careful monitoring”. However they were more optimistic around core inflation which they saw rising to the expected 2% level by early March 2018. The AUD/USD is currently around 0.7420 with solid resistance at 0.7455, a break of this level would target 0.7475 then 0.7500. Conversely , a pullback below 0.7400 would expose 0.7365.


New Zealand
The New Zealand dollar suffered in the wake of last Thursday’s Reserve Bank statement, but since then a consolidative tone has emerged. The RBNZ, it seems, are in no hurry at all to even talk about raising rates and they view the risks to the outlook as balanced. Most economists however feel the central bank will be forced into upgrading their economic outlook over the coming months, and they could well end up hiking interest rates as early as the first half of next year. That expectation was only underscored by yesterday’s retail sales data that came in much stronger than expected. Sales increased 1.5% on the quarter, up from 0.6% prior. The market had been expecting a gain of 1.1%. Tonight we have another Global Dairy Trade auction which will also be closely watched.  With the underlying strength of the NZ economy it’s hard to get too bearish on the NZD. At worst it’s likely to remain range bound as the RBNZ’s current neutral stance helps to limit any significant gains.


United States
Overnight data releases were mixed, but the market concentrated on the oil rebound as equities pushed to new record highs also helped by continued solid corporate earnings results. Industrial production figures for April out later tonight will have more import and are expected to show an increase of 0.4%, just below the 0.5% increase recorded for March. Politically with the Trump administration still reacting to the FBI Director Comey dismissal, the chances of tax reform and infrastructure appear to be more delayed as precious political capital is used up in other debates. The USD has been on the back foot over the last two days as last Friday’s disappointment over inflation and retail sales gathered momentum. Building permits and housing starts are due out in the US tonight, along with the industrial and manufacturing production figures which if solid, as expected, should give the USD a floor to rally from.  Although some data has been mixed, in our view none of it has been against the overall trend of an improving US economy and we remain confident that the Fed will look through such data to the general supportive trend for a rate increase in June.  


United Kingdom
The UK election campaign grinds on with all pointers indicating that the ruling Conservatives will retain power with an increased majority. After last week’s downgrade of growth by the BoE, UK markets have generally shrugged off this effect and the week has opened with the GBP back over 1.2900 against the USD and the equity markets rallying with the FTSE 100 at a new record high fuelled by a bounce in mining and oil stocks. This week will see the release of inflation data and April employment figures and it appears that the market is in wait-and-see mode ahead of this data, if good,, a push back over resistance at 1.2960 is likely towards GBP/USD 1.3000 a break of this level would trigger stops and see an extension to 1.30600 region. Conversely a fall below 1.2900 would target 1.2865.  


Europe
Not much data out for the Eurozone this week, apart from Q1 GDP figures tonight and ECB meeting minutes on Thursday so attention is swinging back to election activity and the retreating of political risk.  Germany is currently the focus with the success of Angela Merkel’s party in North Rhine-Westphalia would be positive for the Euro, as the chance that Merkel will retain her chancellorship should give the Euro and the Eurozone a confidence boost. A report published by the German economic ministry, out yesterday, struck an upbeat note. It commented that employment levels were continuing to rise, order levels in the industrial sector remained strong, the construction sector upturn remained solid, all pointing to solid economic growth over the next 3 months. The result of the French election looks to have been the turning point for the EUR as political risk in the Eurozone fades and turmoil in the US administration starts to affect the US fiscal agenda bringing a weaker tone to the USD.  The EUR/USD has traded up as high as 1.0988 over the last few days, is now at 1.0984 with a break of the 1.1020 level extending to 1.1060.


Japan
The Japanese Yen initially pushed through 113.80 after the weekly open but was soon back at 113.30 with risk appetite driving market movements. Japanese Producer figures posted a gain of 2.1% against the estimated 1.8% Monday showing improvement in 10 straight releases but oddly yen failed to respond. GDP numbers are released Thursday along with a slew of Japanese earnings. Support is still at 113.00 with short term resistance 114.00.


Canada
The Canadian Dollar continues to strengthen across the board pushing off highs against the US Dollar on the weekly open to trade back at 1.3600 Monday. Risk has been to the upside during US trading sessions, with oil bouncing off the lows to trade back close to 50.00 per barrel based on discussions to cut global supply. The Canadian Dollar has taken advantage of risk appetite making a move towards 1.3550. Downside risk stands at 1.3520 with resistance at 1.3780 coming into Manufacturing Sales Thursday with Core monthly CPI later in the week.


Major Announcements
•    RBNZ leave rate unchanged at 1.75%
•    UK Manufacturing Production -0.6% vs -0.2% expected
•    Bank of England leaves rate unchanged at 0.25%
•    USD PPI 0.5% vs 0.2% expected
•    US CPI 0.2% vs 0.3% expected
•    US Core Retail Sales 0.3% vs 0.5% expected
•    NZ Retail Sales 1.5% vs 1.1% expected
•    Chinese Industrial Production 6.5% vs 7.0% expected
 

Economies of Note - 12th May 2017

Written by Howard Wilcox on May 12th, 2017.      0 comments

4:10pm(NZT)
Australia
As we expected there was little discernible market reaction to the Australian Federal Budget, other than the reduction in banking stocks suffered as news of the new tax leaked out earlier in the day. Rating agencies will now be casting an eye over the underlying cash balance projections to see how robust these projections are, it is equally unclear how they will see the new bank tax and what it means for growth and risk. Earlier today Moody’s rating agency noted that although the budget supported their assessment of Australia’s high fiscal strength, the deficit would likely to be wider than the Australian government expects. They also commented that they believed revenues would not rise as fast as the government forecasted and that expenditure would remain higher than that budgeted. March retail sales data released earlier this week, was weaker than expected showing a 0.1% fall, against expectations of a 0.3% increase, the third decline in the last 4 months. The Australian dollar was sold off to 0.7325 the lowest level since January on the disappointing result. The AUD/USD has made a minor recovery from these lower levels over the last couple of days and is now consolidating between 0.7350/80 tone is soft as  metal prices weighing and a generally stronger US unit. The risk remains to the downside, although a move and hold above 0.7400 could signal an extension higher.


New Zealand
The New Zealand Dollar was the weakest performing currency over the last 30 hours after the RBNZ left rates unchanged at 1.75% yesterday. The NZD dropped to a 6 month low of 0.6820 soon after the release a 12 month low. The long term inflation expectations seem to be well anchored around 2% with growth remaining positive amid population spikes, household spending and construction. Property prices have slowed but may continue to rise given the demand for properties from offshore buyers and immigration still outweighs supply. NZD Currency depreciation is encouraged with further drops expected which will no doubt boost the excitement for exporters. Support now seen at 0.6650, expect the NZD do drift lower through to the weekly close.


United States
The ongoing drama that is the Trump presidency continues to make headlines. Although the firing of FBI Director Comey saw a mild sell-off in the USD, markets soon re-focused back on economic data, with April producer prices showing a gain of 0.5% against an expected 0.2% and jobless claims continuing to stay down near 40 year lows. The better data reinforces the potential for a Fed rate hike next month and saw US equity markets come off record highs, but losses were pared back towards the close of the US session  on a rise in crude oil prices  above US$48/brl. The USD has strengthened over the last few days with the EUR/USD having dropped from a 1.1013 high earlier in the week to current levels at 1.0868. April CPI figures for the US will be released later tonight which if solid may see the EUR/USD break below 1.0820 which would confirm a leg lower into the 1.0750/70 region. This view would be negated by a move and hold above 1.10.
   
                                                 
United Kingdom
UK news continues to be dominated by the upcoming general election. The ruling Conservative party of Theresa may received a boost over the last few days as the Labour Party manifesto was leaked. It showed a far more socialist based policy than expected and according to some economists  Labour's plans for borrowing and tax rises will only raise GBP 60 billion, leaving a huge GBP 30 bio  gap in their  spending plans. The Bank of England was expected to forecast steady economic growth over the year ahead showing GDP bouncing back from a slow start to the year, upgrading growth and inflation expectations, in last night's inflation report. Instead, the BoE lowered its 2017 GDP forecast to 1.9% from 2% and attributed the entire recent pickup in inflation to the weak currency. Governor Carney focused on the weakness of household spending and GDP and emphasized that domestic costs and wages remain subdued. He indicated that while wage growth would most likely accelerate, the pickup is not expected to be exceptionally fast. However immediate losses in the GBP were limited as aside from their expectations for stronger wage growth, they also expect the output gap to close in time and for global demand to support trade activity. This may lead to a tightening in U.K. policy, more than the yield curve implies.  With that in mind, the BoE’s forecasts are based on a rate increase by Q4 of 2019. So while the central bank sees the improvements in the economy, they don't want to sound overly optimistic because everything hinges on a smooth Brexit.   On the more dovish BoE report and softer March industrial production data , the GBP/USD fell to 1.2848, the week low, overnight but has now recovered to the 1.28890 level  but resistance around 1.3000 looks solid and 1.2830 provides support on the downside.


Europe
With election fever at rest, until least until next month's French legislature elections, focus is back on things economic. Data on the whole continues to be EUR supportive with tonight bringing release of German GDP for Q1 and April inflation figures. With no change yet to the ECB stimulatory monetary policy we look for the EUR to continue its downward drift against the USD, although political ructions in the US they have given some temporary disruption to this trend. Political issues aside what remains clear is that the ECB and US Fed remain on divergent tracks and with the strong likelihood of a Fed rate increase next month, this divergence is set to widen, making significant gains above 1.1000 for the EUR/USD increasingly tougher.  


Japan
The Japanese Yen has come off its high of 114.35 Thursday posting losses after the North Korean ambassador to the UK said the country will proceed with its sixth nuclear test. The Japanese current account surplus fell to JPY 1.73 trillion, short of the estimate of JPY 1.75 trillion. It’s been a rough couple of weeks for the Yen with only one day in positive territory against the US dollar. The firing of the FBI Director Comey earlier in the week dropped the US Dollar out of favor, the yen rallying back below 113.70 before settling at 114.00. Limited Japanese data published next week with emphasis on US CPI and Retail figures tomorrow for further direction. 115.00 resistance and 108.00 support.


Canada
The Canadian Dollar traded through to a high of 1.3770 Thursday but has since settled around 1.3700 levels. Risk was to the downside with the Toronto Stock Exchange closing down almost 1% and Moody’s downgrade of the Baseline Credit Assessments and Counterparty Risk Assessments. This was the reflection of a more challenging environment for Canadian banks to the end of this year. Oil is back up above 47.00 per barrel also pushing the CAD lower. Locally we have Canadian Manufacturing monthly sales figures, based on recent month’s weak figures we may see the trend continue. Technically the CAD is still locked into the channel from the low of 1.2430 and may test 1.40 the figure.


 
 

FX Update: Europe breathes a sigh of relief after Macron’s win

Written by Howard Wilcox on May 9th, 2017.      0 comments

8:45pm(NZT)
Overview
There was an air of general relief by financial markets, with geopolitical risks easing, as polls for once were proved correct and the French Presidential election was won by centrist, pro-business, pro-European Emmanuel Macron in a convincing manner. Although this result was somewhat built into pricing, there was a rally in the EUR on Monday, but this was short lived as attention focused on whether Macron and his fledgling En Marche movement will be able to win a majority in the legislative elections in June. If he does not, this will limit any reforms that he has proposed to make the French economy more efficient and lower unemployment, curtailing his effectiveness as President. Other positive news was that the US Non-farm employment figures on Friday showed that the US economy was continuing its forward momentum, with an increase of 211k jobs for April, above expectations of 185K. The unemployment rate also had another drop to 4.4% a decade low. The chances of another Fed rate hike in June now appear stronger.


Australia
Today the main event will be the Australian Federal budget which is expected to show a 2017/18 deficit of around $27.7 bln and nominal GDP growth for the same period to be upgraded by 0.5% to 4.25% due to more favourable near term economic factors. With the budget expected to be long on spending pledges and short on savings there is some concern that Australia’s coveted AAA rating may come under pressure as being already on negative outlook by S&P Ratings. Australia is also the only triple A rated country to have increased debt over the past three years. However we do not see the budget as a big driver of volatility as markets focus on shorter term events and many of the budget details have already been absorbed by financial markets. Chinese data still continues to hold sway over the AUD and with Iron ore prices maintaining low levels as Chinese demand stays at lower levels we continue to look for risk to remain towards the downside….0.7300 beckons.


New Zealand
The new Zealand dollar traded higher Friday after US non-farm payroll figure published at 211,000 after 194,000 was expected. The unemployment figure also was lower to 4.4% bringing risk back to the table. NZD opened the week in a less than positive mood again after falling to an 11 month low mid last week but rebounded to 0.6945 in early NY trading. The RBNZ official cash rate is announced Thursday along with the monetary money statement to follow, markets have factored in no change but governor Graeme Wheeler may signal rate hikes earlier than 2019. A head and shoulder pattern is emerging showing the kiwi may continue through to 0.7000-0.7050 resistance.


United States
Solid payrolls figure of 211K jobs for April along with a drop to 4.4% in the unemployment rate shows that the economy continues to head down the recovery road. Although there are some soft spots, inflation and retail sales data will be among indicators to watch this week as well as April’s consumer price report which may show inflation cooling from a year earlier. We are still of the view that an interest rate hike is likely next month as it continues to look as if economic weakness in Q1 was transitory and the outlook is more positive. With political concerns reduced after the French election and the North Korean situation slightly less frenzied, investor focus can now shift back to reading the global economy for fresh signs that global growth is accelerating after better-than-forecast data on American jobs. US equity markets opened slightly lower, retracing from highs the previous week as the market seeks direction. With some of Trump’s key policies looking increasingly diluted and therefore unlikely to provide immediate USD support, the main driver of support will reside with the Fed and any signals it gives on the timing of reducing their balance sheet which expanded rapidly with quantitative easing. While the US economy continues to recover at faster rate than that of Europe, the French election result has shifted levels in the EUR/USD and we look for moves above the 1.10 level over the next month or so than tests of support at 1.7500 and below.

                                                    
United Kingdom
Sold results for the ruling Conservative party in the local elections, where they gained over 125 new seats. Polls now show the incumbent government led by Prime Minister Therese May seems to be on her way to an easy victory in the snap election that will be held on June 8. A recent poll by the Guardian newspaper revealed that May's Conservative Party is seen coming on top with 49% of the votes, 22 points ahead of the Labour party. This has helped the GBP move higher over the last few days, against the USD and most of its trading partners. However economic growth has been softer than anticipated in Q1, weighed down by softening in the service sector which suggests that consumer spending started the year on a weaker note. Also, CPI inflation has started to pick up, helped by the rebound in energy prices, and core CPI has moved higher as well. This increase in prices has started to erode real income growth and reduced growth in consumer spending, which is expected to continue to provide challenges ahead for the U.K. economy. There is a Bank of England’s meeting next week, but we expect the Monetary Policy Committee (MPC) to keep its bank rate unchanged at 0.25% and remain on hold through 2017 due to the slowing growth and rising inflationary pressures the economy is facing. Currently the GBP/USD is trading around 1.2947. 1.3000 provides the next resistance level but a break above this level would see 1.3050/55.


Europe
Project Europe got to live another day, breathing a collective sigh of relief on the French election result. A muted relief rally in EUR crosses finally sent EUR/USD above 1.10 following the election result. The Macron win should dampen Eurosceptic risks to the single currency for a while and thus help to sustain the move higher in ranges for EUR/USD in particular seen recently. With euro-area political risks now side-lined for a while, focus should return to the fact that Europe is looking surprisingly good cyclically, which will most likely lead the ECB to be somewhat hawkish in terms of communication on policy rates in June, i.e. remove the possibility for rates to go lower.


Japan
The Japanese Yen dropped to 113.30 early Monday to its worst level in 3 weeks as it continues to drift weaker against the US Dollar. Non -Farm payroll Friday boosted US fortunes with lower unemployment and broader nervousness for risk. The Nikkei is trading up over 2.3% to 19,895 and should boost yen selling if this continues. We have seen a bullish breakout through support of 112.50 suggesting the previous high of 115.00 of 10 March 2017 could be tested. Japan heads into a quiet week with economic data being thin locally and no significant data to be released to the markets.


Canada
The Canadian Dollar has opened on the back foot again after a stronger than expected unemployment figures out Friday in the US. The US Dollar was also boosted by investors taking profit on EUR positions after Macron won the presidency race in France, the CAD pushing aside 1.3700. Oil prices recovered slightly but have failed to create further buying interest in the Canadian Dollar after further falls this morning. Signs of further slowing economic growth are evident as the CAD remains sensitive to oil prices and housing pressures. The bullish channel towards 1.40 remains with building permits data released tomorrow.


Major Announcements last week:
•    NZ Employment Change 1.2% vs 0.8% expected
•    NZ Unemployment 4.9% vs 5.1% expected
•    UK Construction PMI 53.1 vs 52.1 expected
•    US ISM Non-Manufacturing PMI 57.5 vs 56.1 expected
•    FOMC leaves rates unchanged
•    UK Services PMI 55.8 vs 54.6 expected
•    Canadian Trade Balance -0.1b vs 0.3b expected
•    NZ inflation expectations 2.2%
•    Canadian employment change 3.2k vs 20k expected
•    US Non-farm Payrolls Change 211k vs 194k expected
•    Australian Retail Sales -0.1% vs 0.3% expected

 
 

Economies of Note - 5th May 2017

Written by Howard Wilcox on May 5th, 2017.      0 comments

3:45pm(NZT)
Australia
As expected the RBA left rates on hold at its Tuesday meeting. Rates have remained at a record low 1.5% since last August. Economic data continues to be mixed with unemployment stubbornly high at 5.9%, retail spending weaker and inflation remaining at near record lows. In a speech presented yesterday by the RBA Governor he commented that the key risk to the economy from any fall in house prices or rising interest rates, is what might happen to consumer spending. He warned that the  nation's plunge into record levels of debt and the associated property boom had created a new breed of risk which may lead to a sharp contraction in consumer spending should any property correction occur with a potential for flow on effects to other sectors of the economy. Overnight the AUD traded down close to 4 month lows, as commodity prices took a tumble with both iron ore and copper substantially lower and also undermined by weaker Chinese data.
The RBA will release SoMP (Statement on Monetary Policy) later this afternoon, but we expect little room for surprise on that front. Support is around current levels 0.7380/0.7400 with the potential for a good US payroll figure to drive the AUD down towards 0.7330.


New Zealand
The New Zealand Dollar pushed to a monthly high of 0.6970 Wednesday after data was released showing the unemployment rate dropping to 4.9% the equal lowest level since Feb 2009. A raft of positive US data followed, ISM Manufacturing published at 57.5 showing further expansion and the kiwi started to slide. US Federal Reserve rate decision came in unchanged at 1% yesterday the highlight being a possible hike in the June 15 announcement now 96% likely. The New Zealand Dollar fall all the way to my previously published support level of 0.6850 but looks likely to break lower in the near term with quarterly inflation expectations this afternoon and RBNZ cash rate announcement due next week probably to remain unchanged.


United States
As expected the US Fed kept rates on hold at its Wednesday meeting, downplaying the weaker first quarter economic growth while emphasising the stronger labour market in a sign that suggests there may be another rate hike as early as June. The statement was seen as bullish with the Fed commenting that consumer spending continued to be solid, business investment had firmed and inflation was running close to the Fed’s target. These factors outweighing sluggish GDP growth of 0.7% as consumer spending almost stalled for Q1 and slower job growth in march.
Also of note was that prior to the meeting most Fed policymakers had made it clear that unlike previous years the central bank was more confident of its forecasts for two more rate increases in 2017. As always, tonight's Non-Farm payroll data will be closely watched, with expectations for an increase of around 190K jobs for April and the jobless rate to edge up slightly, but remaining at levels that the Fed considers to be at or near full employment. Now that the Trump healthcare bill has finally passed Congress (it still faces a battle in the Senate) attention will turn back to the tax changes and some clarity around the size and scope of tax cuts, infrastructure spending and regulatory changes that the Trump administration will be able to push through Congress. Any successful stimulus package should speed up the pace of interest rate hikes. Overnight crude oil prices hit a 6 month low erasing gains sparked by OPEC’s November output agreement, as concerns over a supply glut mounted. Earnings kept U.S. stocks afloat, while Treasuries slid with the USD.

                                                    
United Kingdom
Although politics still dominates the UK headlines, new data out this week showed that although there was a small negative blip early in Q1, the UK economy is bouncing back with the expected slowdown failing to materialise. PMI (purchasing manager’s index) data for April, showed an increase to 55.8 with the dominant services sector grew last month at its fastest pace so far this year and outpacing much of the growth seen in 2016. Also positive was a pick-up in pace of manufacturing and construction in April, taking the combined PMI score to 56, also its highest level this year. For the economy as a whole, the employment index is at its joint-highest level since the start of 2016, as factories and building firms take on more staff. However this good news is tempered by price pressures that are squeezing household spending power and if this continues could threaten a slowdown later in the year. The GBP has maintained its strength over the last few days and extended its gains to a fresh daily high at 1.2924 against the USD. It looks to be in a consolidation phase, trading around a tight channel around 1.2920 and we expect little change ahead of tonight’s USD employment data.


Europe
It seems growth in the Eurozone picked up again as Italy and Spain joined the surging output seen in France and Germany. The Eurozone’s composite PMI - combining services and manufacturing - hit 56.8 last month, a fresh six-year high. Ireland led the way with an index score of 58.7, a three-month high, while Spain’s 57.3 represents the fastest expansion in almost two years, and Italy’s 56.8 indicates it is growing at the most rapid rate since 2008. After showing some encouraging signs following the FOMC statement yesterday, the USD suffered heavy losses against the EUR overnight. Investors seem to be taking advantage of the weak USD environment to increase their long EUR positions in anticipation of a Macron victory in this weekend's final round of French presidential election. According to the latest poll released by IFOP, pro-EU Macron is seen beating Le Pen to become the next president of France by 61% to 39%.Additionally, participants will keep an eye on crude oil prices, which dropped nearly 5% last night  and weighed on other commodities as well. The euro could gather further strength against the USD if the equity indexes react negatively to weak commodity prices.


Japan
The Japanese yen pushed through 112.00 USD yesterday on its way to 113.00 a 7 week high before falling back to 112.00 during late NY. The JPY has been declining since the beginning of the year. With the risk on rally in European equities and US Treasury yields this has boosted Investment interest in the USD Dollar this week amid slower than usual trade volumes because of Japan public holidays. With resistance at 112.50 I would expect the continuation of the bearish channel towards 108.00 the prior low of mid -April. Look for non-Farm Payroll early tomorrow for volatility with very little Japanese data next week.  


Canada
The Canadian Dollar has shown little resistance this week after USD support saw the pair trade to 1.3770 a 15 month high. Focus over the past day has been over the federal Reserve decision to leave interest rates on hold with speculation a rise in June seems almost inevitable. The CAD drifted back to 1.3600 after the Fed announcement and was short lived pushing past 1.3700. The drop in metal prices hit the Canadian Stock market mid- week, oil also added to CAD pressure trading down 4 cents lower this week to 45.50. Early this morning BOC governor Poloz spoke about geopolitical risks to the Canadian economy her outlook failed to affect the Canadian markets, trade figures however were positive and boosted the CAD momentarily. Canadian unemployment rate is announced early tomorrow expect around 6.7% preceding this US Non-farm payroll figures. 1.4000 still looks on the cards.