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Economies of Note - 1st April

Written by Ian Dobbs on April 1st, 2016.      0 comments

Trade in the AUD, like the NZD, has been dictated by the broad based USD move which extended sharply lower on Wednesday after dovish comments from Fed Chair Janet Yellen during a speech in New York. Her comments contrasted notably with those of earlier Fed speakers who had raised the prospect in recent days of a rate hike as early as April this year. Yellen’s comments noted the need for caution in the normalization process due to the global risks and effectively scotched any notion of a rate hike this month. Australian data this week included the release of HIA New Home Sales yesterday which fell notably in February and Private sector credit numbers which marginally beat the consensus. China PMI and commodity price data are due later today although look for the US employment numbers to set the scene for trade. Next week’s busy data wrap starts with Retail Sales and Building Approvals numbers on Monday before the RBA interest rate meeting on Tuesday.

New Zealand
The NZD has lept higher in trade since our report on Tuesday on the back of a broad USD sell-off which began in earnest after comments from Fed chair Janet Yellen during a speech to the Economic Club of New York. Her comments included ones which said it was appropriate to proceed cautiously in adjusting policy, and that such caution was “especially warranted” adding that the future path of the funds rate was “necessarily uncertain”. The comments contrasted markedly with those of other recent Fed speakers who had alluded to the possibility to hikes as early as April. Local data took a marked back seat to the offshore events but included Building Consents numbers for February which beat expectations by rising 10.8%. The number was the highest seen for the month since 2004 and was up 35% on the same month last year. The ANZ Business Outlook showed business confidence continuing to fall, notably so in the agricultural sector. Optimism remained high in the construction sector. Look for US events to again set the mood tonight with the extensive data schedule being dominated by the March non-farm payrolls employment report.
United States
The USD has weakened significantly against its key counterparts this week after the comments provided by Fed Chair Janet Yellen during a speech to the Economic Club of New York on Tuesday. The dovish comments included ones that pointed to the need for exercising caution in raising rates and the “necessarily uncertain” future path for the Fed funds rate. Expectations for a hike as early as this month had lifted in recent times given the hawkish comments from other Fed members last week and positive hue of US data-flow. However, data this week started with a weaker than expected release of the Fed’s preferred core inflation indicator, and reduced personal consumption spending data for January. A jump in Pending Home Sales for February was noted as were improvements in the Chicago PMI and ISM Milwaukee series. Initial jobless claims were seen deteriorating in the week to 26 March, although the real focus on the jobs market will come in the form of tonight’s key March Non-farm payrolls release. Expectations for tonight’s ISM Manufacturing PMI data have increased post the overnight positive PMI reads.

United Kingdom
Fortunes for the GBP mimicked those of the other key majors against the USD this week after it posted solid gains on the back of the broad based USD sell-off which resulted from Janet Yellen’s speech to the Economic Club of New York. The dovish comments sent the USD tumbling and markedly reduced the expectations for the degree of US rate hikes in 2016. Yellen noted the need for caution in raising rates and the uncertainty for the Fed funds rate path going forward. Key events in the UK calendar this week have been BoE Financial Policy Committee statement which noted the financial stability risks posed by the Brexit referendum. The overnight release of the final print for the Q4 GDP provided a small upside surprise, although the Q4 Current Account deficit at 7% of GDP was the worst since records began. This may become a more significant issue for the market should the UK choose to leave the EU in June. Concerns over such an exit helped push UK consumer confidence to 15 month lows in March. The week’s local data will conclude with the release of Nationwide house price numbers tonight, which will be followed by the release of the March Manufacturing PMI print.

Trade in the EUR like the other key majors has been heavily influenced by the direction of the USD this week. This has seen the Euro reach levels not seen since October last year on the back of the broad based sell-off in the USD which occurred after the delivery of a dovish speech by Fed Chair Janet Yellen. Her comments have seen expectations for US rate hikes significantly pared this week after she noted the need for caution in raising rates and outlined the risks to the US economy in the form of Chinese economic growth and a clouded outlook for commodity prices. Data out of Europe has been light this week. Releases of note included a dip in the headline Euro-zone Economic Sentiment Indicator and slight upside surprise in the flash German inflation read for March. The Euro-wide numbers matched the consensus forecast at the headline level by falling 0.1%, although the core number marginally exceeded the forecast. Today’s trade is likely to take its cue from the US data events. European PMI reads are unlikely to change the picture of the modest strength already provided by the preliminary numbers.

The JPY has followed other key currencies higher against the USD this week after the dovish speech delivered by Fed Chair Janet Yellen to the Economic Club of New York. Expectations for a move in US rates this month took a dive after the comments which included ones that caution in raising rates is “especially warranted” and the future path of rates is “necessarily uncertain”. The speech noted continued concern over China and the outlook for commodities amidst an uncertain global growth outlook. Local data released this week so far has included better than expected Household Spending data, a miss in February Retail Sales, an unemployment rate which edged higher to 3.3% on the latest read and industrial production numbers which managed to underperform the poor number forecast. The latest Housing Starts data showed a marked lift on the prior read, whilst the Construction Orders data was again weak, although showed a minor improvement from January. Tankan data released today missed the consensus for both the Large Manufacturers and Large Non-Manufacturers index in Q1. Look for tonight’s US data to set the scene of trade to end the week.

The CAD sits higher against its US counterpart this week as the CAD (like the other key currencies covered) rallied after dovish comments from Fed chair Janet Yellen which were delivered during a speech in New York. Her comments noted the need for caution in the rate normalization process and went against those of other Fed speakers who had raised the prospect of a hike at the FOMC meeting later this month. Canadian data releases this week were dominated by the overnight GDP report for January which saw the Canadian economy grow by a much larger than expected 0.6%. The data suggests that the first quarter growth rate will be much higher than the 1% currently predicted by the BoC. This reduces the odds that the central bank will need to reduce rates further this year. Raw material and producer prices for February fell by more than that expected in data released earlier in the week. Look for US data to dictate the mood later today, although oil prices which are drifting lower in current trade will also be keenly watched.