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Economies of Note - 8th April

Written by Ian Dobbs on April 8th, 2016.      0 comments

The AUD has fallen notably against the USD in trade this week. A large part of the losses have come in overnight trade. These came on the back of declining commodity prices and ‘risk off’ flow which has risen after the sharp declines which were seen in key global equity indices. Additionally, strong demand for the JPY has also weighed via the AUD/JPY cross.  Local data releases this week started with building approvals numbers which whilst still in a downtrend, managed to beat expectations. Retail sales data released at the same time showed at flat read for February which was well down on expectations. Weaker than expected trade data on Tuesday was followed by the RBA interest rate decision later in the day. The decision provided a short lived fillip for the AUD after the RBA left rates on hold (as expected) and offered only mild concern over the recent strength of the currency, noting “an appreciating exchange rate could complicate the adjustment under way in the economy”. Next week’s local data wrap will be dominated by the March employment release on Thursday.

New Zealand
The NZD has eased moderately in trade so far this week on most crosses. It has been a quiet week for local events of interest, this has once again meant that any volatility has been largely driven by US dataflow and the prevailing sentiment towards the risk/commodity currencies. Local data released during the week included the latest NZIER business confidence survey which showed business confidence at its lowest level since NZ was last in recession. The own activity level declined to its lowest level since March 2011. The data is viewed by economists as an accurate guide to upcoming economic output. The latest GDT dairy auction release on Wednesday morning saw the index pick-up 2.1%, the moderate lift saw the NZD rise briefly after the data. The NZD is near its lows for the week however, after an overnight fall which has come on the back of declines in most global equity bourses and a resultant move away from riskier currencies like the NZD. Significant flows into the JPY this week have also placed the local currency under pressure. Next week is another quiet week for data releases, electronic card retail sales feature on Monday, business PMI data is due to be released on Thursday, although neither are likely to garner much interest.
United States
The USD sits largely unchanged in trade so far this week. The week has been dominated by commentary emanating from various Fed speakers and from the FOMC minutes release yesterday. The minutes presented mixed opinions amongst the members. Differences in opinion were noted amongst the members as a couple expressed the need for a move in rates last month, whilst numerous members argued for a move in April. Views on the sustainability of inflation also varied. Speech comments included ones from the Fed’s Rosengren who expressed surprise over the current market expectations for rates, whilst San Fran member Williams noted signs that inflation is picking up and the data dependency of Fed policy timing. Data releases of note during the week included a solid rise in the latest ISM Non-Manufacturing PMI read and a slightly weaker read for the Feb JOLTS job openings report. Jobless claims and consumer credit data both bettered expectations, although failed to excite. Amongst the data schedule next week will be the latest retail sales and inflation numbers for March.

United Kingdom
The GBP is ending the week near its lows against the USD in current trade, as Brexit concerns have continued to have a significant bearing on trade again this week. PMI reads dominated the data calendar during the week, although failed to provide much excitement for the market. The construction data remained steady from the month prior in March, in the process posting a small upside surprise. The services number which rose to 53.7, was up from the month prior and matched market expectations. Halifax House price data released overnight showed a 10.1% y/y gain, the monthly read was well above that expected. The Financial Policy Committee meeting meetings noted concerns over a Brexit and noted a desire by the BoE to increase countercyclical capital buffers held by banks to ensure lending during times of financial stress. Manufacturing production data dominates the data wrap tonight, whilst next week we look forward to inflation numbers (Tuesday) and the BoE interest rate meeting on Thursday.

Pricing in the EUR has continued to drift against the USD this week. The week was dominated by the overnight release of the ECB minutes, which indicated that further rate cuts were possible if required. The members noted broad support for the package of measures announced at the recent meeting, although differences of opinion were expressed over the merits of some. The effect of negative interest rates on bank earnings was one of the components that attracted differing opinions. This effect is seen as one of the reasons behind the JPY strength after Japan also introduced negative interest rates this year. Data releases of interest this week included a minor improvement in the Euro-zone unemployment rate, declining producer price numbers, a downwards revision in the final EU service sector read (which pulled the composite read lower), weak German factory order numbers and a fall in the German Industrial Production data from the month prior. The decline was less than anticipated and came on the back of a strong rise in January. Regional inflation numbers will be the highlight of the data wrap next week.
The JPY has continued to surge against the USD in trade this week. Gains overnight saw it reach 17 month highs against the USD and come as the market tests the resolve of the BOJ to tolerate a stronger JPY. The gains presents a large frustration for the BOJ who introduced negative interest rates at the end of January, a stimulatory move which was likely supposed to introduce further JPY weakness. The resultant impact on bank margins since the move has impacted Japanese bank earnings and bank stock prices. An unintended consequence of this issue has been increased JPY demand as local banks have repatriated inbound JPY. Data out of Japan has been light this week. Releases have included a rise in average cash earnings and current account data this morning which showed an improvement on the month prior .Data of interest next week includes industrial production numbers and Core Machinery Orders, both of which will take a back seat to the overriding theme in the market at the time.


The CAD has eased moderately against the USD in trade this week. This comes despite the price of oil having shown some gains on the week. The majority of the lift in oil pricing came in the middle of the week after data which showed US crude oil supplies falling by 4.9 million barrels in the week to April 1. This was the first decline seen in eight weeks and came against expectations of a 3.3 million barrel build. Local data releases included the overnight release of strong building permits data which lent some support to the CAD. Releases earlier in the week included a notable miss in the latest Ivey PMI index which fell from levels the month prior, and trade data for February which also deteriorated from the previous read. Pending data releases of note includes tonight’s March employment and Housing Starts releases. Next week will be dominated by the BoC interest rate meeting on Thursday (NZ time). Expectations are for the cash rate to be left on hold at 0.5%.