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Economies of note - 7th August 2015

Written by Sam Coxhead on August 7th, 2015.      0 comments

It has been a very interesting week in the Australian economic environment. The interest really started with materially better than expected trade balance and retail sales for June. Retail sales numbers shone at +.7% against a market expectation of +.4%. These numbers added to what was solid momentum ahead of the RBA’s monetary policy announcement. Adding to the mix was a large buy AUD flow that came to market - reportedly the proceeds from Origin Energy’s sell down of 53.3% of New Zealand company Contact Energy. The RBA left monetary policy unchanged as expected by the market. The accompanying statement watered down its medium term rhetoric with regards to the Australian dollar needing to move lower to be in line with fundamentals. After what has been a mostly torrid year for the AUD, it is a marked shift in wording and further underpinned the AUD to push it to the upper end of recent ranges on some crosses. Next week the domestic focus falls somewhat, with just the NAB business confidence and Westpac consumer sentiment data to accompany the Q2 Wage Price Index.
New Zealand
This week has seen further pressure exposed in the NZ economy. The Fonterra GDT auction results once again made horrid reading for dairy farmers - with the index plunging another 9.3%. With Chinese warehouses reportedly full to the gunnels, it’s hard to see demand being turned anytime soon. Later today we will see Fonterra update their expected payout forecasts and this is expected to make miserable reading when released around 3pm. The employment numbers on Wednesday were weaker than expected with employment growth of +.3% lagging the expected +.5% level. Also of note was the 53.3% sale of Contact Energy by Australian energy giant Origin Energy. By all accounts 1.8 billion NZD of proceeds flowed through the market from NZD to AUD midweek. This saw not only a material move lower from the New Zealand dollar against the AUD, the pressure flowed through to other pairings also. Next week there are a number of second tier NZ data releases, but the focal point will be the release of the Q2 retail sales numbers on Friday.
United States
The economic data this week has been mixed ahead of the main focus of the employment numbers later on today. ISM manufacturing numbers missed expectation by a margin and whilst the market backed off the USD buying for a time, it was not to last. Various Fed speakers have reiterated their point that the time is coming for monetary policy adjustments away from the extreme levels currently being maintained. With the USD in demand for much of 2015, the economic impacts of the stronger currency were always going to expose themselves at times. It seems apparent that motivation for a tightening in monetary policy is moving towards the curtailing of unintended consequences, as opposed to maintaining a shaky growth path. The jobs growth data later today should support the notion of increasing numbers of jobs, albeit the usual earnings’ increases of tightening labour markets are being more stubborn and are to be seen. Next week July retail sales data provides the primary focus, along with producer prices, industrial production and capacity utilisation numbers.
United Kingdom
This week the economic focus in the UK was about “Super Thursday”, and deluge of economic enlightenment from the Bank of England (BOE) that it comprised of. The BOE monetary policy decision was joined by the minutes from that meeting and the inflation report for the first time. The unchanged policy announcement saw a shift in voting bias from the nine seat panel with one of the nine voting for a rate rise. This indicates a changing bias towards increasing interest rates from the emergency lows levels at some point towards the turn of the year. The inflation report highlighted that the fall in energy prices was likely to see inflation remain low well into 2016. In the accompanying speech, Gov. Carney was less “hawkish” than the comments over the last few weeks from various BOE representatives (including himself) suggested. He also bemoaned the bounce in demand for GBP since April and the drag it has on the economy. Also the National Institute of Economic and Social Research (NIESR) released their 3M GDP estimate and this came in on expectation at .7%. The overall impact of “Super Thursday” was one that saw the GBP give up some ground. It points towards further data watching from the BOE with regards to the eventual timing of rate rises. Next week in the UK sees only second tier news due for release with BRC retail sales, unemployment claim numbers and the latest RIC housing price data.
It has been a relatively quiet week for economic news in Europe. That is if you discount the plunging Greek stock markets as they opened. With the index falling more than 20% on the open and banking stocks receiving continued pressure, there was a certain amount of focus to see if contagion would spread. But the spiral was contained and world markets took the chaos in their stride for the most part. In terms of economic news European Services PMI beat expectation slightly with an index result of 54.00 vs an expectation of 53.8. The retail sales number disappointed with a sharp fall in June of -.6% further accentuating the economy’s weakness. The issue of dealing with the high unemployment levels to sustainable growth levels remains the hurdle.
It has been a relatively quiet week for economic data so far in Japan. Of the low tier economic releases made so far, the focus has been the preliminary result from the Leading Economic Index for June. It rose from the previous level of 106.2 to 107.2 and will be of some encouragement to Kuroda ahead of the monetary policy meeting later on today. Obviously no change is expected from the policy announcement, but the accompanying statement will be closely picked over for the latest thinking from the central bank. Next week sees the focus move to Wednesday’s release of the latest industrial production and capacity utilisation numbers.
This week has been a short one for news in Canada following the bank holidays on Monday. The latest RBC Manufacturing PMI was slightly lower from the previous release of 51.3 to 50.8. This weakness has been countered by a materially better than expected merchandise trade numbers where the deficit came in at -.48 billion vs the expected -2.08 billion. This provided a little much needed demand for the beleaguered CAD that continues to suffer from the associated weakness in crude oil markets. Later today the release of the employment numbers for July provide the focus with the market expecting 9.9k in jobs growth and an unemployment rate of 6.8%.
Topics: BOE, BOJ, Economic news, FED, RBA, RBNZ