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Economies of Note - 4th March

Written by Ian Dobbs on March 4th, 2016.      0 comments

The sharp falls seen by the AUD on Friday after the better than expected U.S. data releases have quickly reversed in trade this week. Trade has been bolstered on the back of a surge in appetite for currencies with commodity exposures. Tthe buying has particularly benefitted the AUD given the strong gains seen in iron ore, base metal and oil pricing, with the latter trading at levels not seen in nearly two months. Key data out of Australian has also been supportive with the most notable being the Q4 GDP report on Wednesday which saw the annual pace of growth jump to 3.0%, some ½ a percent above the consensus forecasts. Other data releases (amongst others) included soft inventory and company profit data on Monday, weak building approvals numbers and a worse than expected Q4 current account on Tuesday. HIA new home sales posted another gain for January although dipped from the month prior. The RBA interest rate decision on Tuesday was a non-event after they left rates on hold at 2.00% as was widely expected keeping a statement which was broadly the same as February’s. Weaker than expected Chinese manufacturing and non-manufacturing data joined the other softer than expected data releases which failed to dent the enthusiasm seen for key commodity currencies like the AUD. Of immediate interest  today is the latest Australian retail sales data, this comes prior to the key U.S. employment data in offshore trade tonight.

New Zealand
The NZD has had a strong finish to the week on the back of renewed enthusiasm for currencies with commodity exposures and on the back of a sharp fall in the USD overnight. Trading started the week of a soft footing after the release of better than expected U.S. data on Friday and a trifecta of local events which included weaker than expected building approvals numbers, a sharp drop in the latest business confidence sentiment and a downgrade of the NZD from a leading Australian bank. Weaker than expected terms of trade data for Q4 released on Tuesday failed to dent the NZD any further which was at that point was beginning to rise on back of the broad based rally being seen in commodity currencies. The release of the latest GDT dairy price auction on Wednesday failed to garner much excitement after the index rose just 1.4%, its first gain in 2016. The 5.5% rise in whole milk powder prices was less than that suggested by the NZX dairy futures prior and sits significantly below levels required to realise the latest Fonterra forecast pricing. Looking forward it will be U.S. data that garners the market’s attention tonight with the release of the February non-farm payrolls employment report. Next week we look forward to the RBNZ interest rate decision on Thursday morning where the market widely expects rates to be left on hold at 2.5%.

United States
It has been a very busy week for data in the U.S. this week. Early week gains were fully eroded in trade overnight in a large part due to comments from the Fed’s Kaplan who suggested that the global financial conditions have likely restrained the U.S. economy and that the altered conditions were equivalent to an increase in the Fed funds rate. Data releases during the week included sharp falls in the Chicago PMI and pending home sales numbers and decline in the latest Dallas Fed manufacturing business index. Construction spending and manufacturing ISM data both topped expectations. The non-manufacturing ISM print also managed to marginally exceed the market’s forecast, although January factory orders underwhelmed against the consensus. The ADP nonfarm employment report was much better than expected and points to a strong non-farm payrolls employment number tonight which continues a theme of data which has so far failed to yield to the tightening in financial conditions as mentioned by the Fed’s Kaplan overnight.

United Kingdom
The GBP has continued to recover this week from last week’s drubbing which saw it fall heavily over the fears of the likely economic fallout from a Brexit. The rally this week has come despite a raft of weaker than expected local data during the week, this as the market over-extended the Brexit fears last week. Key data included U.K. manufacturing PMI numbers which declined by more than expected in February. A broad decline in manufacturing globally and Brexit concerns likely presented a drag on the data. The construction and services PMI numbers also underwhelmed, although both remained well in expansionary territory. Halifax house price numbers for February declined sharply on the month prior although still showed a healthy annual gain of 9.7%. The data was backed by mortgage lending and approval numbers released earlier in the week which both posted solid gains from the prior month’s revised numbers. Manufacturing and industrial production data feature as the more high impact U.K. data scheduled for release next week.

The EUR has overcome a poor start to the week to be trading higher than its opening levels of the week in current trade. The lift comes on the back of a weaker USD and European services and composite PMI data which provided a positive surprise on the final read overnight. Positive results were noted from all the key contributing countries except France. Data released earlier in the week included a well-flagged soft euro-zone inflation print and easing in the positive momentum of the European manufacturing sector. European employment data continued to display a weak job environment although continued on its path of a slow improvement in the trend. U.S. data including the key non-farm payrolls employment report will be the focus for trade tonight. Next week’s busy calendar will be dominated by the ECB interest rate decision on Friday morning.

The JPY has eased in trade against the USD over the course of this week. This has occurred against the back-drop of a reduction in volatility in global equities and stabilization in commodities pricing which has been observed as the week progressed. Data out of Japan began with the release of better than expected industrial production numbers on Monday; the retail sales numbers failed to meet the consensus expectation however. Construction order numbers released later in the day were disappointing although the housing starts data showed an improvement on the month prior. Household and capital spending numbers were both weaker than the market’s expectations, although the latest employment numbers showed an improving unemployment rate. Look for tonight’s U.S. data and general risk sentiment to dictate trade in the JPY over coming hours. Japanese data to watch next week will begin with the release of Q4 GDP numbers on Tuesday.

The strong rebound by the CAD against its U.S. counterpart has continued during trade this week as it once again moved higher on the back of rallying oil prices, and data which showed the Canadian economy growing more than expected in the fourth quarter. The numbers showed an economy which had slowed substantially in the quarter, although the 0.8% gain topped both economists and policy maker forecasts, where expectations were for a flat number.  Expectations for a BoC rate cut continued to reduce after the numbers. Other relevant data released during the week included a supportive Reuter’s OPEC oil output survey which pointed to expectations of a decent decline in output for February and Canadian Q4 current account and raw materials price data which both topped forecasts. RBC manufacturing PMI data managed to post a small rise from the month prior. Trade data and the Ivey PMI are set for release tonight. The BoC interest rate decision and Canadian employment data will feature next week.