Get a free Quote

From CCY
please type the characters you see:
(spam filter)
spam control image

Apply now

Obligation free account and currency commentary btn_apply_for.gif
Browse By Topic

FX News

Most recent FX News:

Read more

Economies of note - 24th May

Written by Ian Dobbs on May 24th, 2013.      0 comments

3:20pm (NST)
It hasn’t been a great few days for the Australian economy with a number of releases underscoring the outlook for slowing growth. First up was consumer confidence which saw its largest decline since December 2011. Then came Chinese manufacturing data which moved into contraction territory for the first time in seven months. To cap it off, Ford announce they are going to close two car manufacturing plants in Australia as it’s no longer profitable to build cars there. The AUD has suffered under the weight of this negative news flow. The continued USD strength saw the AUDUSD pair touch a low of 0.9600 yesterday. It has recovered off those lows in subsequent sessions, but it remains fragile. There is little in the way of domestic data out next week that could materially change the current outlook.

New Zealand
There has been little in the way of market moving data out of New Zealand this week. Offshore factors have been the biggest driver of the currency and that looks set to continue next week. Recent USD strength was given a boost from FED Chairman Bernanke’s comments about scaling back quantitative easing (QE). This saw the NZD trade as low as 0.8011 yesterday, before bouncing back above 0.8100 overnight. Volatility in Japanese stocks yesterday might be a signal of what lies ahead for markets in general and this will likely translate to a period of increased volatility for the NZ dollar.

United State
The big focus this week was on Wednesday with FED chairman Bernanke’s testimony on the economic outlook, and the release of the FOMC minutes. Much of what hit the newswires was very balanced in its outlook, and the USD initially came under selling pressure. That all quickly changed during the following Q & A session, when chairman Bernanke said ‘the Fed could scale back asset purchases within the next few months if labour market improvement was sustained.’ There has been a lot of comment and speculation recently as to just when the Fed would start tapering off QE. This has served to increase demand for USD across the board. These comments by the chairman cemented USD demand, and saw it make further gains against most other currencies. It also caused stock markets to turn around from their spike higher, and close the day 1% lower. The US stock market should be very wary after seeing the action in Japanese stocks on Thursday. They fell 7.3% after softer Chinese manufacturing data. Like the US, Japanese stocks have been inflated by the central bank’s quantitative easing policies. Yesterday’s moves just go to prove how unsustainable these policies may prove to be. Upcoming data on the employment situation, and growth in general, will now be watched closer than ever, and could add real volatility to the markets.

The Euro-zone had more patchy data out in the early part of this week, and this has done little to change the outlook. Last night saw slightly improved readings on Euro-zone manufacturing and service sectors, and tonight German GDP will offer further insight. Bank of Canada governor Mark Carney was pulling no punches in his assessment of Europe when he spoke this week. He said "Europe remains in recession, with economic activity constrained by fiscal austerity, low confidence and tight credit conditions. Deep challenges persist in its financial system. Without sustained and significant reforms, a decade of stagnation threatens." It’s hard to disagree. We could well expect further non-standard measures out of the ECB in the coming months to further stimulate the economy. This was highlighted by an official who last night said “an absence of credit flow was hampering activity and driving inflation lower.” Next week we get readings on inflation and consumer confidence, plus German retail sales and unemployment to offer focus.

United Kingdom
The UK’s run of stronger data hit a speed bump this week. Three key releases all came in at, or below, expectation. Inflation surprised everyone printing below any forecasts, which is good news for their economy, but undermined demand for the GBP. That was followed by retail sales that disappointed, although many believe this was due to very poor weather. The Bank of England (BOE) minutes were released that showed three members of the monetary policy committee, including governor King, continued to vote for more quantitative easing. The second reading of GBP was unchanged. This has all weighted on the GBP, which I suspect will now struggle on a number of pairings. With only housing data and consumer confidence out next week, it’s hard to see where any new demand for the GBP is going to come from.

The Bank of Japan (BOJ) had their rate decision this week which saw a slightly more optimistic tone from governor Kuroda. As widely expected there was no change in rates, but the BOJ has upgraded their assessment of the economy on the back of better consumer sentiment. They believe although inflation is likely to fall slightly in the near term, it should gradually turn positive thereafter. The governor has admitted however, there is high degree of uncertainty over the economic outlook. The same can be said for their stock market which yesterday saw a 7.3% drop. The selloff was triggered by soft Chinese manufacturing data. To put it into context though, Japanese stocks were up 50% this year, thanks in large part to the quantitative easing programme by the BOJ.

The only data out of Canada this week has been retail sales that disappointed coming in just below expectation. We did however, get a speech from outgoing Bank of Canada (BOC) governor Mark Carney, who is soon to be taking over at the Bank of England. He reiterated his view of a stable outlook for Canada with growth to pick up going forward. He sees investment and exports a little weak, and signs of overvaluation in the housing market. The upcoming week see the both the BOC rate decision and GDP numbers released.