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Australasian currencies remain supported

Written by Ian Dobbs on March 25th, 2014.      0 comments

1:45pm(NZT)
Market Overview:
Throughout the course of the last week conflicting market signals have led to some strange price action. US Federal Reserve Chair Janet Yellen caused a stir at the Fed’s monetary policy announcement, as she indicated that actual hikes to the Fed funds rate would likely start six months following the conclusion of the quantitative easing program. Adding to the mix is ongoing pressure on Chinese growth indicators, including yesterday’s larger than expected contraction in the important manufacturing sector. This comes as focus intensifies on the Chinese corporate debt sector, amid an increasing number of defaults. Equity markets remain vulnerable as global interest rates consolidate at higher levels. These themes will provide the lead for the wider markets again this week. This will likely see a continuation of the recent ranges for most pairings, albeit the Australasian pair remain in demand.


Australia
There has been little in the way of fundamental economic releases from Australia over the past week. The Conference Board released their leading index (designed to predict the direction of the economy) on Friday. The 0.2% result marks a significant fall from the previous reading of 0.8%. However, the impact in the market was very muted. Of more interest was yesterday’s HSBC manufacturing PMI for China. After posting a substantial fall the previous month the market was looking for a small improvement. Instead the index fell further to 48.1, well into contraction territory and an eight month low. The Australian dollar however, has shrugged this off and put in a strong performance over the past 24 hours. We will get comments from the RBA Deputy Governor today and tomorrow see the release of the RBA financial stability report.


New Zealand
There has been no data of significance since last week’s GDP result that printed bang on expectation. Visitor arrivals and credit card spending data release on Friday had no impact in the market. The economic calendar for this week is also looking very thin with on the trade balance set for release on Thursday. In the absence of data the NZD has remained relatively range bound on most crosses.


United States
Data released toward the end of last week continued to be supportive of the economic recovery in the US. Weekly unemployment claims fell further signaling the chance of a decent payrolls number next Friday. The Philly Fed Manufacturing Index (a leading indicator of broader economic health) improved sharply to +9.0 from -6.3 previously. Forecasters were expecting a result of +4.2. We also saw comments from the Fed’s Fisher who said the Fed has exhausted efficacy of QE policy. He expects asset buying to end by October at the current pace. This is well in line with market expectations. We have also seen nothing to refute Janet Yellen’s inference, after last weeks Fed meeting, that interest rate hikes could begin about six months after the end of QE purchases.  Last night the market was a little disappointed with a weaker reading on US manufacturing. The Markit Manufacturing PMI fell to 55.5 from 57.1 last month. Expectations had been for a smaller decline to around 56.5. Focus now turns to consumer confidence and new home sales data tonight. This is followed by durable goods orders tomorrow and later in the week we get pending home sales, final GDP, and personal spending data.


Europe
We have seen some positive releases from Europe over the past few days supporting the view that a very gradual recovery is taking place. At the end of last week data on the current account and consumer confidence beat expectations and improved from the previous month. Then last night we got readings on the manufacturing and service sectors from both Germany and France. The German results came in below expectation showing a small fall, but the French results both beat expectation jumping above the 50 level which denotes expansion in the industry. This data would suggest the Eurozone’s recovery is more widely based than previously thought. We have also seen Moody’s rating agency raise the government bond rating outlook for Cyprus to ‘positive’ from ‘negative’, and the Spanish PM was on the wires saying 2015 GDP could hit 1.8%. There is however, still a lot of work to be done in Europe and any recovery will remain very fragile. Later this week we get German business and consumer climate index’s, German CPI, and French consumer spending.


United Kingdom
There have only been a couple of second tier releases since last week’s BOE minutes and comments from Governor Carney. Those comments put some pressure on the UK Pound and although subsequent data on public sector net borrowing and CBI industrial order expectations both came in above expectation, their impact has been limited. Of more interest, and importance, will be tonight’s reading on inflation. The market is looking for the CPI to fall to 1.7% from last month’s 1.9%. A stronger than expected reading will support the GBP. Later in the week we get retail sales data, consumer confidence, current account, and the final reading of GDP.


Japan
There have been no releases of interest since last Wednesday’s trade balance and all industries activity index, both of which came in below expectation and down on the previous month. Bank of Japan (BOJ) Governor Kuroda has been on the wires although his comments offer little in the way of fresh insight. He believes the economy will be on track over the next 12 months and that domestic demand is stronger than expected. He has also warned that the BOJ could adjust monetary policy without hesitation. The focus now turns to inflation and retail sales data set for release on Friday.


Canada
In an interesting turn of events, Friday’s Canadian inflation data came in stronger than expected with the core number printing at 0.7% vs expectations of only 0.5%. And this is after Bank of Canada Governor Poloz suggested, only days earlier, that inflation and GDP were likely to disappoint. The Canadian dollar reacted positively to the release, although the gains were somewhat limited considering the result. This is especially surprising as Friday also saw retail sales data come in stronger than expected at +1.3% vs expectation of only 0.8%. With almost no Canadian data this week the market will be left scratching its head for near term direction in the CAD.


Major Announcements last week:
  • European Inflation .7% vs .8% expected
  • US Industrial Production +.6% vs +.1% expected
  • European Business Sentiment 61.5 vs 67.3 expected
  • US Inflation 1.1% vs 1.2% expected
  • BOE leave monetary policy unchanged
  • US Fed taper QE by 10 billion as expected
  • NZ GDP Q4 +.9% as expected
  • US Phila. Fed Manufacturing Index 9.0 vs 4.0 expected
  • Canadian Inflation +.7% vs +.5% expected
  • Chinese Manufacturing PMI 48.1 vs 48.7 expected
  • European Manufacturing PMI 53.0 as expected
  • US Manufacturing PMI 55.5 vs 56.5 expected
 

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