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Economies of Note - 31st March 2017

Written by Ian Dobbs on March 31st, 2017.      0 comments

It has been a light data week for Australia. The Aussie got a boost yesterday afternoon in Asian trading, as new Aussie home sales edged slightly higher in February according to the HIA, up by 0.2% following a drop of 2.2% the previous month. Today will see release of the private sector credit, but more attention will be paid to the Chinese Manufacturing & Non-manufacturing PMI data for March out later this afternoon. These are expected to be ahead of the February figures, however lower numbers could send the AUD towards the support level at 0.7600. A break of 0.7600 could extend to 0.7570, this level if broken would signal a more established bear trend. We favour trading above the 0.7600 to finish the week.

New Zealand
The New Zealand dollar has seen little action this week with fundamental news thin and movement restricted. Commodities prices pushed higher this week including a gain of over 3% in oil which has gone a long way to easing credit worries among traders. This kept the New Zealand dollar above 0.7000 for a majority of the week with the high seen at 0.7070. Next week we have Global Dairy Auctions and US Non-Farm Payroll figures, both will be key to the New Zealand dollar remaining buoyant in the short term.

United States
Equity markets and the US dollar end the week higher. Comments from various Fed officials suggesting that rates may need to rise faster than the market anticipates saw a good bounce in the USD overnight also helped by the final revision of US Q4 GDP came in at 2.1% from previous estimate of 2.0%. After what has been a very turbulent 3 months for US equities,  the S+P 500 is now heading for a gain over  this quarter of around  5.7%. Politics aside, the US economy continues to move ahead with most data continuing to reinforce the moderate growth picture. With latest USD move higher, the EUR/USD has broken below the critical support level of 1.0700 and looks vulnerable to an extension initially to 1.0660 then 1.0620 early next week.
United Kingdom
After all the talk in the lead up to the event, the formal triggering of Brexit on Wednesday 29th ended up being a little ho-hum, with no major moves. The unemotional, rational tone in PM May’s letter triggering Article 50 to Donald Tusk, the EU Council President, helped minimise volatility on currency markets, at the beginning of what is sure to be a torturous  2 years of negotiations. At the crux of the matter is whether the UK will be penalised by the EU with a “hard” Brexit so as to provide an example and so discourage growing anti- EU sentiment in other parts of the EU. However this, “hard Brexit “ would not be helpful to the either side, as trade with the UK contributes 17% of the EU GDP and is a major consumer of EU products. The UK is one of the biggest markets for German cars, so a “hard” Brexit appears unlikely as it is in the interests of both parties to remain pragmatic. A further point to consider is if the 2 year negotiation period will be long enough, as given the size of the UK economy and its complexity, this timeframe may have to be extended. On UK equity markets the immediate reaction was a fall of 0.4% by the FTSE100, but it then rallied back to close at 0.41% higher. The GBP dropped below the 1.2400 USD level to an 8 day low of 1.2375 but recovered back to the 1.2436 level yesterday and is now at 1.2473. Initial moves downward have proved to be shallow and a hold over 1.2470 targets 1.2535 then 1.2580. Conversely, on the downside a break of 1.2375 would expose 1.2330 on the way to 1.2260.

Overnight data showed March consumer inflation for Germany and Spain slowing more sharply than expected as oil prices dropped. German inflation was at 1.5% against an expected 1.9%, Spanish inflation eased from 3% to 2.1%. This data provides backup for the ECB‘s view that the surge in inflation in February over the their target of 2% was an aberration and lessens pressure to wind down its monetary stimulus. The overall inflation rate for the Eurozone due out later tonight is now expected to drop from 2% seen last month to 1.8%. It is unlikely, given inflation pressures easing, that the ECB will move to increase rates or withdraw stimulus anytime soon, especially with the French elections over the April/May period. This outlook should keep a lid on any periods of EUR strength. On the political front things were a little more positive, with the latest poll on the French Presidential elections showing an uptick in popularity of the more centrist Macron against his closest rival, right-wing Le Pen. Macron/ Le Pen now 64/36 in 2nd round versus 62/38 previously. The EUR was lower after the official Brexit announcement, dropping from 1.0825 to 1.0766. Overnight the stronger USD has knocked the EUR back to the 1.0684 level. Immediate support is at 1.0680 then 1.6830. Upside resistance is at 1.0705 then 1.0725. Downside price action is favoured heading to week end.

The Japanese Yen continued its run through to 110.10 mid- week bouncing off key support.
With FOMC officials still seeing scope this year to raise rates 3-4 times this may fuel a rebound in the Japanese Yen. With the Nikkei trading back above 19000 throughout the week we have seen the near term support above 111.00, this may have triggered further investor interest to the topside, resistance of 112.50 could be tested in the near term. Overnight saw the unemployment rate down to 2.8% from 3% and household spending post negatively at 3.8%. Monday sees important Manufacturing data, watch for movement around current levels with a potential for fresh highs on positive data.

The Canadian dollar continues to trade in narrow band this week. Commodities initially boosted the CAD earlier in the week after prices continue to rise, oil up over 3%. The bank of Canada governor Stephen Poloz said Tuesday they had room to improve the North American Free Trade Agreement, he vowed to re-negotiate the free trade agreement as many Canadians fear job losses and possible loss of their healthcare system. The CAD dropped to a low yesterday of 1.3275 but has since recovered to 1.3350. A break below 1.3250 will be crucial support in the coming week as this would indicate an end to the current range.