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Economies of Note - 13th March

Written by Ian Dobbs on March 13th, 2014.      0 comments

The key piece of economic data from Australia this week was employment change, released in the last couple of hours. The result was a real surprise coming in much stronger than anyone expected. Employment rose 47.3k against an expectation of on 15.3k. Looking into the detail made even better reading with full-time employment up 80.5k and part time employment down 33.3k. This was indeed a very strong result and the AUD reacted by jumping higher. Earlier in the week we also had business confidence which declined a touch from the previous reading. This was followed by consumer sentiment which also decreased. The past week has also seen a lot of focus on China and some worrying signals coming from commodity markets. Both copper and iron ore have seen big falls recently, driven by concerns around credit defaults in China. This is a developing story that will likely play out over the coming year, but the reality is credit expansion in China over the last five years has been eye watering. There are some very real risks around how this could all unwind and if Chinese company defaults increase those risks will look increasingly likely to eventuate. The highlight from next week’s economic releases will be the RBA minutes on Tuesday.

New Zealand
The Reserve Bank of New Zealand (RBNZ) today increased interest rates by 25 points, or quarter of a percent. This move was widely expected and as a result didn’t overly impact the currency. What did help the currency higher were slightly higher projections by the central bank of the tightening’s to come. They now see around 125 points of tightening this year, whereas the market had priced in closer to 100 points. They also see the eventual peak in this tightening cycle being somewhat higher than the projected ‘neutral interest rate’ of 4.5%. The RBNZ views the current level of the currency as overvalued in the long run, but they are realistic in their outlook that it could stay overvalued for a prolonged period. The overall takeaway from the statement and press conference is that the RBNZ is just slightly more ‘hawkish’ than previously. This has lent some support to the NZD, at least in the near term. Next week we have consumer confidence, the current account, and GDP data to digest.

United States
There have been no economic releases of note from the United States so far this week. We have seen minor data in the form of wholesale inventories and the NFIB small business index, but neither of them has had much impact in the market. Of more interest will be tonight’s retail sales and weekly unemployment claims. We should hopefully continue to see a bounce back from previous weather affected data. On Friday evening we also get producer prices and consumer sentiment data to digest. Next week should provide a lot more focus with building permits, inflation, housing starts and home sales, along with the Federal Reserve’s monetary policy meeting.

This week was a relatively quiet one for economic news in Europe. Yesterday saw the latest German trade balance figures come to light. Both increasing exports and imports point to improving health of the economy that is the engine room of Europe. Also of positive note was last night’s European industrial production data that came in above the expected 1.9% at 2.1%. Later on today the European Central Bank (ECB) release their monthly bulletin, albeit this should be of limited impact. Of interest is the latest data from ratings agency Standard and Poor’s that showed the value of new stock market listings more than tripled in 2013 for Europe. This is an indication of recovering confidence and bodes well for general business investment going forward.

United Kingdom
It has been an uneventful week for the UK economy so far. Industrial production and manufacturing numbers were at, or very close to expectation, and remain well entrenched in positive territory. At the Bank of England’s (BOE) testimony before parliament’s Treasury Select Committee, Governor Carney stated that the BOE could raise interest rates by up to 2.5% during the next three years. He also confirmed that the quantitative easing program would remain in place until the bank hikes rates several times. This would have the effect of tempering moves higher in longer end interest rates initially, therefore easing the burden on borrowers of longer term money. Fridays trade balance numbers round out the week, albeit the release should be of limited impact to the price action

The Bank of Japan (BOJ) held their monetary policy meeting on Tuesday and as widely expected they left rates, and the current level of QE expansion, unchanged. They believe the economy is on a steady track to achieve to achieve the 2% inflation goal by early 2015. They don’t expect the upcoming sales tax hike to cause a recession, however they won’t hesitate to act if obstacles emerge to meeting the inflation target. There really was nothing new or exciting in the release. On the data front this week we have seen better results for the Tertiary Industry Index (a leading indicator of economic health) and the quarterly Business Sentiment Index. These have been countered however, by a small fall in consumer confidence and a downward revision to fourth quarter GDP. PM Abe will have been pleased to see announcements from a number of major manufactures that they are going to increase base wages this year. Mitsubishi, Honda, Nippon Steel and Sumitomo are among those who will be paying workers more. The increases however are very modest at around JPY 2,200 a month. That’s equivalent to about USD 21, a month. Surely the sales tax increase will eat up that and then some. Next week will be a quiet one with the only release of note being the trade balance on Wednesday.

There has only been one economic release from Canada so far this week. Housing starts came in a touch above expectation at 192k although it had very little impact in the market. The only other release this week comes on Friday in the form of the new house price index and capacity utilization. It’s hard to either of those having much of an impact as well. Next week however should be a different story with manufacturing sales, wholesale sales, inflation, and retail sales all set for release. All of those releases have the potential to impact the current economic outlook.