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Economies of note - 25th October

Written by Ian Dobbs on October 25th, 2013.      0 comments

1:30pm (NZT)
Just the one piece of data from Australia this week, and that was inflation. It did however have an impact, coming in above expectation on both the headline and core readings. The result reinforces the view that the RBA monetary policy will be on hold for the foreseeable future, and gave the Australian dollar a quick 50 point boost against USD. That strength was short lived however, as a wave of ‘risk off’ sentiment swept through the market later that same day. This saw the AUD give back all its gains and then some. The selling was a reaction to an article stating Chinese banks had massively increased provisions for bad debts. This combined with surging money market rates as Chinese regulators are said to be considering tightening liquidity, and we saw a wave of panic that punctured an otherwise quiet day. Asian stocks got hit along with Australasian currencies. Next week’s releases include new home sales, building approvals, private sector credit, and producer prices.

New Zealand
A quiet week for New Zealand data with trade balance yesterday the main focus. That did come in substantially better than expected, although the previous result was revised to a bigger deficit. There was little overall impact on the currency. We did get comments from Finance Minister Bill English on Wednesday that the Government shares concerns about the exchange rate, but they acknowledge there is little that can be done. Later that day the NZD came under heavy selling pressure as worries about the Chinese banking system caused waves. A spike in money market rates and details of bad debt write-off by Chinese banks saw Asian stock markets and Australasian currencies come under sharp pressure. Things eventually settled down and some of the losses were retraced. Next week’s highlight will be the RBNZ monetary policy statement. That is followed by building consents and business confidence.

United States
The focus for this week in the US was the release of the delayed employment report for September. Expectations were for a gain for around 180k but the actual result was significantly weaker at only 148k. There were small upward revisions to prior numbers, and the unemployment rate actually fell to 7.2% from 7.3%, but the market was unimpressed. The USD was sold across the board as the data seemed to confirm that the Fed are at least six months away from starting to reduce quantitative easing purchases. This week we have also seen August construction spending which did beat expectations and an advance reading on the manufacturing sector which showed some weakness coming in below last month's reading. Tonight see the release of durable goods orders that will be closely watched, while next week we have a full economic calendar that includes retail sales, inflation, the Fed policy meeting, and manufacturing data.

Data out of Europe this week has been less than inspiring. Preliminary readings on the manufacturing and service sectors of both France and Germany have come in below expectations and down on the previous month. Last night we saw French jobless claims jump 60k with unemployment now at a record high of 3.296 million. None of this seems to have hurt the Euro however, which has had a decent week on many crosses. The ECB also announced details of its bank review and stress tests which will take a year to complete. Draghi said the ECB won’t hesitate to fail any banks in the stress tests, and that regional governments will be ready to plug any capital holes that emerge. Tonight we get German business climate index and next week we have German retail sales, inflation, and employment.

United Kingdom
This week we have had a number of speakers from the UK on the wires, and for the most part they have all been singing the same tune. That is that the UK recovery is increasingly sustainable, albeit with growth that is likely to be modest by historical standards. On Tuesday we got public sector net borrowing figures that showed the Government’s fiscal position is improving. Revenues rose by 7% while spending rose by only 2.5%. This week we also got the minutes from the last Bank of England (BOE) meeting and they helped to support the GBP. The BOE has upgraded its growth forecasts and said that unemployment would fall faster than anticipated. This is confirming the markets view that interest rates will rise sooner than the bank had previously expected. The BOE also showed no concern at all over the recent strength in the Pound. Other data this week included solid mortgage approvals and a big fall from last month’s strong industrial order expectations. Tonight will be interesting with the preliminary reading of third quarter GDP. The market is expecting a reading of 0.8% which would be an improvement over the last quarter’s 0.7%. Risks are probably skewed to the topside given the solid data we have seen recently. Next week the economic calendar is a little lighter with house prices, consumer confidence, and manufacturing data the highlights.

A quiet week for Japanese data with only disappointing trade balance figures on Monday, and inflation data released in the last few hours for the market to digest. The inflation figures came in close to expectation and had no noticeable impact. The Nikkei stock market succumbed to jitters about the Chinese banking system on Wednesday and lost nearly 2% on the day. This also saw the Yen benefit from safe haven flows. The IMF released a report calling for structural reform in Japan saying monetary policy alone will not be enough. In a boost to achieving the goal of 2% inflation, the president of one of Japan’s leading manufacturers announced a raise in the base salary of its workers. Increasing wages in general will be key in sustaining any increase in inflation.
Next week there will be more to digest with retail sales, industrial production, and the BOJ monetary policy statement.

There have been two key releases this week from Canada. The first was retail sales that disappointed, coming in below expectation and well down on last month. The core retail sales number, that excludes autos, was a bit better but over all the numbers point to weaker retail spending which doesn’t help the outlook for the economy. This softer outlook was reinforced by the Bank of Canada (BOC) in their monetary policy statement on Thursday. As expected they cut growth forecasts and eliminated any mention of removing policy stimulus from the statement. This saw the CAD come under further selling pressure as previous expectation of a potential rate hike next year have all but vanished.