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Economies of Note - 11th December

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

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

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

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

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

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

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

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