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Economies of note - 10th May

Written by Ian Dobbs on May 10th, 2013.      0 comments

3:45 PM (NZT)
The only data of note since the RBA cut rates on Tuesday has been the unemployment figures that came out yesterday. There was a large jump in the numbers of employed, and a corresponding decline in the unemployment rate to 5.5%. This saw increased demand for the AUD, and the currency recover almost all the ground lost earlier in the week. This data is bucking the trend of softer economic releases for Australia recently. So it will be interesting to see where next week’s home loans and business confidence figures print. Also out this week were surprisingly strong export figures from China. This would normally be a positive indicator for Australia, but many commentators are questioning the validity of the data. Also of note before the employment number, was the Westpac call for another RBA cut in June and a cash rate of 2% (currently 2.75%) by 2014. If we see a return of softer numbers in the near term, this view may gain ground and further undermine demand for the Australian dollar.

New Zealand
It has been a very interesting few days for the NZ economy and the currency. Wednesday saw the release of the financial stability report by the Reserve bank. Not surprisingly two of the main issues the report talked about were the housing market and the currency. The RBNZ are looking to dig into their toolbox to find something other than the level of interest rates to try and cool the property market. Loan to value limits and bank capital requirements are likely to be used. Governor Wheeler then went on to say there is room to cut interest rates if the house price appreciation started to ease. These comments, along with the usual calls of the currency being ‘over valued’, saw the NZD start to come under some pressure. But Wheeler saved his best for last, and it was later on while appearing in front of a parliament select committee that he caught everyone off guard. His comments that the RBNZ has been selling NZD’s and that they are capable of further intervention saw the currency trade down about 1 cent against the USD on the day. No one really expects the RBNZ can do anything to change the trend in the NZD by intervening in currency markets. They just don’t have the size, or fire power. But they can certainly stop it being a one way bet, keep speculators on their toes, and help to round off spikes higher. They seem to of have achieved some of that here. Thursday then saw the release of key unemployment data which came in much better than forecast at 6.2% (expected was 6.8%). This just helps to reinforce the consensus view of a solid NZ economy underscored by the Christchurch rebuild. Next week’s releases of note include house sales, retail sales, and manufacturing index.

United States
Improved sentiment toward the US following last week’s better than expected employment data has continued this week. The only disappointing data was consumer credit that printed a little weak, but the market largely ignored it. More importantly were better than expected wholesale inventory and weekly jobless claims numbers. Although there wasn’t a big reaction to these numbers immediately they do serve to reinforce a better outlook for the US economy. This is particularly true for the jobless claims data which is starting to suggest that the drop in the unemployment rate to 7.5% seen last week was not an aberration. More so, this could well be the start of a trend in the right direction. Employment numbers remain the key for the Fed policy going forward. The currency certainly found some strength in late New York trading on Thursday as the USDJPY broke above key psychological resistance at 100.00. This triggered wave after wave of USD buying against most other currencies. Next week sees a full economic calendar with the most notable releases being retail sales, producer prices, industrial production and consumer confidence.

The EURO was buoyed by some better than expected data out of Germany this week as factory orders and industrial production both came in above expectation. The currency managed to recover almost all the ground it lost after last week’s interest rate cut, and subsequent talk of negative interest rates. Last night the ECB released its monthly report which shows they have lowered GDP forecasts for 2013 to -0.4% from 0.0% previously. Not a huge surprise as the market is well aware of the structural problems the Euro-zone faces. Until recently there was an attitude within the ECB that the central bank had done as much as it could, and it was now up to governments to undertake the reforms needed to turn the Euro-zone around. However, this attitude may be changing though, and this week’s talk from ECB officials has been suggesting they are looking outside the box for ways to boost lending, especially to SME’s. There is a G7 meeting this weekend and with many calling for growth policies, and easing of austerity measures, there is the chance for something interesting to come out of it.

United Kingdom
The improved data and a tentatively more optimistic outlook for the UK economy continued this week. This week industrial production and manufacturing production figures both beat expectation. The Bank of England last night announced no change in either the benchmark interest rate, or level of quantitative easing after their policy meeting. This was widely expected and the market offered little reaction. The GBP had been looking firm and eyeing further gains, but the USD strength across the board early this morning has seen the GBP under some renewed pressure. Next week sees employment numbers, and the Bank of England inflation report that are both potential market moving events.

There has been little in the way of fundamental news for Japan this week. Only the leading index,as expected at 97.7, and trade data which shows with a slightly smaller surplus than expected for April. The currency itself had been very quiet maintaining a tight range between 98.50 and 99.50 against the USD until early this morning. In late New York trade, the JPY came under pressure as USD buyers jumped into the pair. A move up through the important level of 100.00 triggered further buying and it currently trades near 100.80 and this move triggered weakness on other pairings. Next week sees a lot of second tier data which will be overshadowed by the more important consumer confidence on Wednesday, and GDP on Thursday. With the undeniable commitment from the Government and BOJ to end deflation in Japan, will undermine demand for the YEN for the short to medium term at least.

Canadian numbers so far this week have done little to change the markets view that the outlook for the economy remains solid. Very strong building permits data was tempered by surprisingly weak manufacturing data. Housing starts, and price data were in line with expectation, remaining at solid levels. The CAD has continued to gain ground this week. It has been stronger against most other currencies, and is currently trading at its best levels against the USD since February. The market is keenly awaiting Canadian employment data out tonight, which could set the tone for the currency in the near term. Next week sees existing home sales released ahead of more important inflation data.