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Economies of note - 14th June

Written by Ian Dobbs on June 14th, 2013.      0 comments

2:50pm (NZT)
Data out of Australia this week has actually been ok, although for most of the week the Australian dollar remained under pressure. Both consumer confidence and employment data came in better than expected. Although neither reading could be considered strong as such, they were better than what the market was looking for. They do little to change the overall picture though, with the economy softening and the chance of another rate cut in the second half of the year. The AUD seemed to ignore the data for most of the week, but overnight it has finally started to find its feet and we’ve seen a decent move higher. Next week’s economic calendar looks pretty light with monetary policy meeting minutes and RBA bulletin the only releases of note.

New Zealand
For the most part, offshore factors have been the driver of the New Zealand dollar this week, although there was some small selling as a result of the RBNZ rate decision yesterday. As widely expected the RBNZ left rates unchanged at 2.5%. It seems some in the market might have been looking for a signal from Governor Wheeler that a hike in rates may come a little earlier than expected. There was no sign of that in the release and the NZD came under a little pressure as a result. There have been plenty of comments this week on the recent currency move with Wheeler saying the drop in the NZ dollar is positive for the economy. Bill English was quoted as saying the exchange rate outlook has shifted since the budget, but it is too early to say whether it will have a positive impact on the budget scenario. The focus next week will be on consumer sentiment, current account and GDP data.

United States
Data out of the US this week has generally been supportive and reinforced the view that a slow but steady recovery is underway. Last night in particular saw good retail sales numbers and a drop in weekly unemployment claims. The US dollar however hasn’t benefited from this and is generally weaker overnight. It seems now that because tapering of the Fed’s asset purchase programme is fully factored into the market, the risks ahead of next week’s Fed meetings are that Bernanke disappoints. That is to say, he tries to play down the chance of scaling back quantitative easing in the near term. So some risk has been taken off the table so to speak, and those who bought the USD over the last few weeks, are locking in profits and selling them back. This is the new normal for markets in general. Large swings in value and subsequent sharp reversals are here to stay for the foreseeable future as markets adjust to the threat of withdrawal of the massive stimulus that has been pumped into them over the last few years. All eyes will be on the Fed meeting next week.

Europe has had a mixed bag in terms of data this week, but the most notable release was industrial production that came in substantially stronger that expectation. The EURO itself has seen good demand for much of the week and continues to remain well supported. The ECB’s monthly report was out last night and in it they reaffirmed to keep interest rates at a record low of 0.5% for as long as it takes to see sustained economic improvement. There have also been plenty of comments from ECB officials this week. The general theme of these comments is that there is on-going debate within the governing council, about further measures should they be necessary. Next week the focus with be on the G8 meeting, ahead of figures on German economic sentiment, the manufacturing and service sectors, and overall Euro-zone consumer confidence.

United Kingdom
The UK’s recent run of better data has continued this week with both industrial production and employment numbers printing a little better than forecast. While you wouldn’t call either result a strong reading, they are certainly improving and heading in the right direction. While this has helped to keep the GBP supported against most other currencies, it hasn’t made much in the way of gains. Next week offers plenty for the market to digest with the G8 meeting starting on Monday, followed by UK inflation data, the Bank of England minutes, and retail sales.  

Japan had good economic data out early in the week with GDP and consumer confidence both beating expectations. Next came the Bank of Japan’s policy meeting and as widely expected they left rates unchanged. The Bank was somewhat upbeat saying they see Japan’s economy picking up and that they will continue with quantitative easing, until the 2% inflation target is reached. The market was however a little disappointed, that there were no measures to address volatility in Japanese bonds. This saw bond yields spike higher, along with weaker stocks and a much stronger JPY. That general theme continued for much of the week, with Japanese stocks losing over 6% on Thursday alone, and the JPY strengthening across the board. Big moves in the JPY are spilling over into other currencies and general market volatility is picking up even further. Next week sees a very light economic calendar for Japan. The focus will be on the G8 meeting on Monday and Tuesday.

The Canadian dollar has remained on a firm footing after last week’s strong data releases. Housing start figures out on Tuesday also beat expectation and help to underpin demand for the currency. Aside from that it’s been a quiet week for economic news out of Canada. Next week should be a little more enlightening with the new Bank of Canada governor Stephen Poloz speaking on Wednesday, followed by inflation data on Friday.