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Economies of Note - 24th March 2017

Written by Howard Wilcox on March 24th, 2017.      0 comments

3:15pm(NZT)
Australia
The Australian dollar has been well supported over the last few weeks underpinned by the firm base metal price. However, with iron ore prices back again overnight and gold softer the AUD continues to slide, down substantially from the 0.7748 seen only 3 days ago, at 0.7628. With increasing doubts on the continuing demand for steel out of China and little in the way of economic data today, Australian dollar movements will be more reliant on iron ore price movements. Immediate support is at the 0.7600 level then around 7550 but unlikely either of these levels will be tested today. Now that the US Healthcare Bill vote has been delayed, look for consolidation around the 0.7615/35 level as we head into the weekend.


New Zealand
New Zealand interest rates remained unchanged at 1.75% as expected at the RBNZ announcement Thursday morning. The RBNZ commented that global inflation has increased partly due to rising commodity prices although we have seen a slump in oil prices, the long term inflation expectations remain well supported at 2 percent. Expectations are that CPI will be variable over the coming months along with further depreciation of the NZD to achieve further balanced growth. This week’s Global dairy trade auctions were overall surprisingly positive with a change of 1.7% over 7 March figures. Whole Milk Powder made a slight recovery from the recent slump in commodity prices, perhaps showing good support around pre-$2,750.00 levels. The New Zealand dollar is still well supported above 0.7000 with upside bias still intact. Short term resistance is still limited to 0.7100, a break above this level will indicate strong opportunities for buyers.


United States
Economic data flows continue to be positive, with February new home sales figures showing a 6.1% increase, well in excess of the 1.6% forecasted.
However the reflation rally in both equity markets and the USD sparked by Trump’s election continues to falter as the delivery of pro-growth policies such as tax cuts, and infrastructure spend remain far away. US equity markets and the USD were relatively flat last night as the Trump administration attempted to garner support for the healthcare Bill which has now become a bellwether for how well Trump can deliver on his big spending programmes. The health care vote has now been postponed, in a setback for Trump and Ryan, on doubts that they have enough votes to ensure a win. It may be voted on Friday morning US time, USD direction is very dependent on the outcome, so brace for volatility at the Monday opening.

                                                                          
United Kingdom
Figures out on Wednesday showed UK inflation at the highest level for 3 ½ years in February increasing speculation that the Bank of England may have to start looking at interest rate increases over the next few months. Prices were up by 2.3% yoy in February, exceeding the BoE’s target of 2% and above forecasts of 2.1%, driven by rises in food and fuel prices and the weaker GBP which also increased the costs of goods and services. However BoE meeting minutes note that an attempt to offset the effect of a weaker GBP on inflation by increasing interest rates would come at a cost of increased unemployment. This concern may be enough for the Bank to look through the current higher inflation levels and keep rates on hold at 0.25% for the majority of the year. The GBP jumped higher on the inflation data to 1.2492 against the USD and then pushing onto 1.2504. It is now up around 1.2522, after better than expected retail sales figures overnight but with the Brexit trigger to be pulled next Wednesday we expect the GBP to soften from current levels.


Europe
The EUR has remained firm over the last few days as the softer USD tone continues. Economic data for the Eurozone region continues to show gradual improvement, but with core inflation remaining persistently low there remains little rationale for a rate increase anytime soon and speculation around a deposit rate increase has now abated. Political risk remains the “elephant in the room” with the French elections fast approaching. Although the centre-right Macon performed well in the first televised debate and continues to lead in the poll’s, given that around 30% of voters are still undecided Marine Le Pen could still cause an upset. The EUR/USD uptrend has moderated, now sitting around 1.07829 after a high yesterday at 1.0823. A fall below 1.0765 would signal a downward correction with a break above 1.0830 targeting the December high at 1.0870. With the US health-care bill vote now postponed look for the EUR to consolidate at current levels to end the week.


Japan
The Japanese government this week  assessed its consumer spending on rising wages and consumer consumption, the economy is said to be gradually improving but small areas remain weak. This marks an upgrade to last month’s weaker assessment hoping consumers will continue to spend boosting further recovery. Tokyo and Osaka is now back in the world’s top 10 most expensive cities due to the recent surging Yen, Tokyo had been the world’s most expensive city for the most past of the last two decades despite a fall in the cost of living and a weaker JPY. The Japanese yen extended its  run against the US Dollar trading today just off the weekly low of 110.72 and the previous low of November 2017. Next week we have Retail trade figures and household spending with little other significant data releases.


Canada
The Canadian finance minister delivered up the Canadian budget this week, named the budget for everyday people. Starting with a large deficit of 28.6 billion this coming year he spoke about a changing world for Canadians based on rapid improvements to technology and a need for new skills and growing demands on time. 5.2 billion has been set aside for skills development with education and employment training at a time when the natural resources sector cannot be countered on to provide ongoing employment. Retail sales and inflation printed stronger than expected midweek pushing the Canadian Dollar higher across the board. USD/CAD support is still seen around the bottom of the recent short term trading band of 1.3300. With Core Durable Sales tomorrow to end the week, we may see a further push higher towards 1.3400 the weekly high if the figure is an improvement of 0.2%

 
 

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