The AUD has had another solid week and like the NZD posted fresh 2016 highs (above .7800) against the dollar as it traded to levels not seen since June last year. Movements in the CRB commodity index and investor enthusiasm for the commodity linked currencies have once again been behind the moves over the quiet local data week. The RBA minutes released on Tuesday revealed little new, although a slight change in wording around monetary policy was noted as it was changed from needing to be “accommodative” to “very accommodative”. Governor Stevens noted in a later speech that uncertainty in relation to China is unavoidable as it undergoes a large transition. Comments around the current level of the AUD were elusive, although in response to a question around the lack of talking the AUD down Steven’s did say that the need for jaw-boning the currency lower was not the same in the .7000s as it was in the .9000s. NAB business confidence data released yesterday for the March quarter eased marginally from the quarter prior although continues to show resilience in the non-mining recovery. Look for the local Q1 inflation data on Wednesday to be a key driver next week.
Movements in commodity prices and risk appetite have once again been the key drivers behind the volatility in the NZD this week. These factors saw the NZD trade to highs against the USD above .7050, levels not seen since June last year. The week started with a decline on the back of a lack of an agreement between the oil producing countries which met in Doha on Sunday. Local Q1 inflation data released on Monday which printed slightly higher than market expectations helped sentiment however. The 0.4% annual number currently lies well below the lower bound of the Reserve Bank’s (RBNZ) target (1%), although the quarterly print matched their forecast. The latest GDT dairy price auction realised a gain of 3.8% overall, although whole milk prices increased 7.5%. The rise comes on back of the small lift seen at the previous auction and represents the first consecutive rise in prices since December, although the GDT index still sits 13.6% lower than this time last year. ANZ Consumer Confidence data released yesterday showed a bounce from last month’s drop. Looking out to next week we look forward to the OCR cash rate decision on Thursday. Expectations for another cut sit around 30% currently, although the current levels of the NZD will elevate the frustration within the RBNZ. Increased frustrations will have come from the recent levels of the trade weighted index (TWI) which sat over 3% above the RBNZ’s June quarter forecast at one point this week.
The USD (DXY index) is trading largely unchanged in current trade this week. Much of the volatility occurred overnight on the back of the surge and subsequent sell-off in the EUR which dragged many of the other currencies down against the USD after the ECB meeting. Data of interest out of the US this week included an 8.8% m/m fall in Housing Starts for March, although when adjusted for seasonality starts actually lifted 7.3% m/m. Existing Home Sales numbers for the same month showed a sharp rebound on the month prior after it easily beat expectations. Jobless claims which showed a sharp decline on the week prior points to another solid Non-farm payrolls report for April when released early next month. The Philly Fed Manufacturing Index was seen falling sharply in April from March as it declined 14 points to -1.6. Falls were seen in the new orders, employment and shipments series. Capping the week off will be the Manufacturing PMI read for April tonight, before next week’s busy schedule which is dominated by the FOMC meeting on Wednesday (Thursday NZ time).
The GBP has continued its recovery against the USD this week, although sits off its highs. It fell in line with a lower EUR and stronger USD overnight on the back of comments given at the ECB meeting. Positive risk sentiment and a lower USD helped buoy the GBP earlier in the week after the initial Doha sell-off. The rally continued despite the release of softer than expected UK labour market data, which showed the first increase in jobless claims since August 2015 and a less than expected rise in weekly earnings. The data suggests possible Brexit concerns on hiring, although a phone poll on the Brexit issue released this week showed a 49/39 split by respondents in favour of Britain remaining in the EU. Retail sales data released overnight which declined 1.3% m/m in March provided further evidence of potential Brexit uncertainty taking a toll. Looking out to next week for the UK we have the release of the preliminary Q1 GDP data on Wednesday as the highlight.
Gains posted by the EUR against the USD this week have evaporated in overnight trade during a volatile session which saw the EUR initially rally 1% before giving back its gains later in the session. The volatility came over ECB meeting which saw the ECB leave its policy unchanged and Governor Draghi signal that interest rates will be at “present or lower levels for an extended period of time”. Draghi repeated that all instruments available within its mandate would be used to achieve the ECB objective. The initial rally looks to have occurred after he failed to talk down the Euro as aggressively as many had expected. This coupled with a lack in urgency in his desire to add additional stimulus as the ECB waits for the March measures to be given time to work, looked to undermine EUR demand. Data of interest out of Europe this week included the German ZEW investor sentiment survey which increased on the back of an easing in global concerns, although the current conditions series deteriorated on the month prior. ECB bank lending data showed an easing in credit conditions during Q1 whilst euro-area consumer confidence numbers again fell in the latest read. The data week will conclude tonight with PMI reads from across the euro-zone. Inflation, employment and confidence numbers all feature next week.
The JPY has eased in trade against the USD this week. Gains at the start of the week on the Doha oil flop were short lived as the oil price and subsequent appetite for risk recovered quickly. Nikkei equities also recovered well from Monday’s sharp fall which was a reaction to the second large earthquake in southern Japan over the weekend. Data points of note in Japan have been largely absent over the week, although it picks up slightly this afternoon as the Tertiary Industry Activity Index and preliminary Manufacturing PMI data are released. The March Trade balance has been the highlight so far however and the release saw it print lower than expectations, although up on the month prior. Comments from the BOJ Governor beat a similar tone and were overlooked once again after he noted that the price trend is improving and that inflation would hit 2% in the first half of 2017. Focus for next week will centre squarely on the BOJ meeting on Thursday. Expectations that policy may be eased again have increased recently as the market anticipates a possible reaction to the surge in the JPY.
The CAD has had another strong week against the USD in trade this week, although sits around 1% of its highs in current trade after last night’s retracement in the oil price. The oil price move was seen after comments from ECB president Draghi which provided support for the USD. Once again it has been the energy and oil markets dynamics which have been responsible for the continued strength which was seen this week. The move higher in oil (and the CAD) has come despite the initial disappointment at the start of the week which came after the Doha oil producer meeting failed to meet a production cap consensus. Supportive inventory data, a Kuwaiti oil worker strike, data which showed a continued decline in US oil production to 18 month lows and comments from the IEA that noted the likelihood of the oil market rebalancing by year’s end- all helped bolster demand for oil during the week. Data out of Canada has been scant over the course of the week, although will heat up tonight with inflation and retail numbers both due. Wholesale trade data for February fell more than expectations, the ex-auto number experienced its largest drop since Dec 2008. Comments from BoC Governor Poloz included ones which noted the expectation for inflation to stabilize around 2% in H2 2017 and the likelihood of a gradual 3 year (or more) adjustment towards the non-energy economy.