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Economies of Note - 15th April

Written by Ian Dobbs on April 15th, 2016.      0 comments

The AUD has continued to enjoy support against the USD this week. Early week gains were aided by better demand for commodity currencies in part on the back of support for the price of oil which enjoyed strong gains at the end of last week. March employment data released yesterday added to the upside impetus after it beat expectations, although the full time employment component was disappointing. The unemployment rate was seen dropping marginally against expectations of a small rise from February. Housing Finance data released at the start of the week revealed a sharp jump in investor and owner occupier loans, although the latter underperformed expectations. NAB Business conditions data showed a rise to eight year highs, the confidence read also rose from the month prior. The data shows strong evidence that the non-mining recovery is continuing despite the recent financial market volatility and rising global economic uncertainty. Westpac confidence data showed a different picture in the consumer sector as consumer sentiment fell from the month prior. Chinese trade data released the same day showed a sharp recovery in exports which helped to underpin the performance of the AUD. Chinese data will gain feature today as the Q1 GDP is released.

New Zealand
The New Zealand is largely unchanged against the USD since our report earlier in the week. It has been another quiet week for local data leads. Gains were noted through the early part of the week and came largely on the back of a general move higher in the commodity currencies. Heavy selling against the Australian dollar yesterday has put the NZD under pressure into the end of the week however. Data of note this week has been uninspiring. March retail card spending eased on the month prior and comes amid waning confidence in the rural sector. Food prices for the same month jumped from February. Business PMI data showed a dip from the month prior, the dip in expansion was broad based and included a slight contraction in the employment component for the second month running. The indicators showed continued growth in the manufacturing sector overall. REINZ March house sales showed a 4.2% y/y lift in the national median price, the sharp jump for March likely indicated significant high end sales rather than a large jump in the market. In other news of interest the RBNZ has decided to end embargoed OCR briefings after news that the recent March 10 rate cut was leaked by the media. NZ inflation data on Monday and the next GDT dairy price auction on Wednesday will dominate the event calendar for next week, Chinese GDP data due later today will also interest.

United States
Fortunes for the USD have improved over the course of this week. The data week was dominated by the release of retail sales and inflation numbers for March. The former disappointed on both a headline and control basis (the latter is the Fed’s preferred measure) on the back of a drag in auto sales. The inflation data released overnight also underwhelmed, after all the main measures printed one tenth below expectations. Energy prices provided the main positive influence whilst lower clothing prices were seen dragging. Other data of more limited interest included weekly initial jobless claims which provided more evidence of strength in the labour market after it fell to its lowest level (equal with the week to 4 March) since November 1973. Talk from various Fed members mainly continued to strike notes of patient and gradual normalisation in the path of Fed rates. The theme of caution in monetary policy normalisation was also evident in the language of the Fed’s Beige Book. Data of immediate interest today will included manufacturing and industrial production reads and Michigan Consumer Sentiment.

United Kingdom
This week in the UK has been dominated by the overnight BoE central bank meeting and latest inflation read on Tuesday. The overnight meeting provided few surprises after the bank left their rate policy (0.5%) and asset purchase target unchanged after a unanimous decision. Policymakers noted the difficulty that the EU exit referendum would pose for interpreting economic data over the coming months and the negative impact that the issue is having on business spending. Data released earlier in the week shows that the BoE has plenty of time on its hands before seriously considering the need to tighten after the latest inflation read showed core inflation still running well below the 2% inflation target. The 1.5% annual read was a 15 month high however. The bank noted that unit wage costs were still running at levels below that which would be consistent with the inflation target. Retail Price Index data released with the inflation report rose above expectations whilst the producer price output data marginally topped forecasts. Dominating next week’s event calendar will be the employment data release due on Wednesday.

The EUR has fallen notably against the USD since our report on Tuesday. The correctional move comes on the back of strong gains in recent weeks and a lift in the USD overall towards the week’s end. The local event calendar has been lacking over the week, although did include German regional inflation numbers which came in line with expectations. EU industrial production data released later in the week disappointed whilst the euro-wide inflation data like the German numbers prior also matched consensus forecasts. The flat annualized number is currently running well adrift of the ECB target which aims for a rate of just under 2% annually. Expect a much busier week next week on the event calendar. Dominating will be the ECB interest rate decision on Thursday. Other items of interest include the ZEW economic sentiment surveys, the German IFO business sentiment survey and various PMI reads.

The JPY has eased in trade against the USD over the course of this week. This will likely come as a relief for officials who have watched the JPY reach 17 month highs against the USD in recent days. It has been a quiet week for data out of Japan this week. Core Machinery numbers released on Monday showed a sharp plunge from January whilst corporate goods prices again declined from the month prior. Latest bank lending data showed a marginal dip, although none of these releases caused a stir. Comments from the BOJ Governor Kuroda refuted the market’s assessment of the negative interest rate policy which many have attributed as a key reason behind falling Japanese equities (led by the banks) and strengthening Yen which has been evident since the policy’s introduction. Looking ahead we look forward to Industrial Production and Capacity Utilization data this afternoon. Next week’s releases include trade data and Manufacturing PMI numbers for April.

The CAD has held on to most of its gains seen against the USD this week. CAD demand has continued to enjoy the backing of a firm oil price ahead of this weekend’s Doha meeting between the key OPEC and non-OPEC oil producing countries. Both the Brent and WTI near term oil contracts set fresh 2016 highs this week on the back of news that Saudi Arabia and Russia had already reached a consensus for an output freeze ahead of this weekend’s meeting. Gains moderated in later trade on the back doubts over the Doha commitments and likely loose framing of any deal. The event calendar in Canada this week was dominated by the BoC interest rate decision on Thursday. As expected the cash rate was left unchanged. The central bank reduced its projections for global economic growth, although noted Canadian GDP growth was likely to be positively influenced by the fiscal policy stimulus of the new Trudeau government. Governor Poloz noted that the recovery in exports was US demand driven and that the ingredients were present for the US to get back to full capacity. Data released has included new house price numbers overnight which marginally topped expectations. Manufacturing sales numbers will be released tonight.