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Economies of note this week - 4 May 2012

Written by Sam Coxhead on May 4th, 2012.      0 comments

6:42 PM (NZT)
The Australian Economy:
This week has all been about the Reserve Bank of Australia. As their Tuesday interest rate decision approached, the market had fully priced in a 25pt cut to the cash rate, with a 30% chance of a 50pt cut. The RBA surprised with a 50pt reduction, to 3.75%, sighting lower growth and benign inflationary conditions as easing the way for the lower cash rate. There was immediate reaction from the interest rate market, but the follow through in the foreign exchange market has been less committed. One point of note is the next Federal Budget is due on Tuesday next week, and historically the RBA do not make changes just after the Federal Budget, so it may have been a case of front loading a second 25 pt cut, by delivering it this time around. This would explain the “surprise “ move, to some extent. Todays RBA quarterly Monetary Policy Statement reiterates recent points. GDP expectations for 2012 and 2013 reduced from 3.25% to 3.0%, benign inflationary pressure and employment growth. The European debt crisis remains the most significant external threat and Chinese growth has slowed as expected. Next week we have building numbers and retail sales on Monday, and the important employment  data on Thursday.
The US Economy:
The mixed picture of a struggling recovery continues in the US economy this week. Better than expected manufacturing numbers were balanced by weaker services data. Weaker private employment numbers were balanced by a drop in weekly jobless claims numbers. The big event awaits us later tonight, in the form of the official employment numbers. The labour market is crucial to renewed consumer sentiment in the US, so near term direction will likely be driven by this result. Next week sees a relatively quiet US calendar with consumer sentiment numbers on Friday the focus for the week.
The UK Economy:
In a relatively quiet week we have seen a mixture of results for the second tier data released. Weaker than expected manufacturing and services numbers were partially balanced by stronger construction data. Next week the Bank of England is back in the focus, although no change in monetary policy, and therefore no comment, are expected at their meeting. GBP continues to consolidate its recent strength, with the lowered probability of further quantitative easing, as inflation pressure has increased.
The New Zealand Economy:
It has been a somewhat strange week in the NZ financial markets. The data focus came in the form of the first quarter employment numbers. The headline unemployment rate rise from 6.3% to 6.7% shook the market, but the detail is actually stronger than the headline suggests. The NZD has seen strong selling pressure throughout the week, and certainly the employment numbers did not help. Interestingly the interest rate market has seen evidence of stop loss exiting of positions. This has seen the market pushed to the extreme of starting to price in an interest rate easing from the RBNZ. This is very unlikely, especially in the face of a demonstrably weaker NZD, and points towards some kind of correction in both markets, with both interest rates and the currency potentially paring losses. Again softer diary prices at Fonterra’s bi-monthly diary trade auction will also have affected sentiment. Next week sees a limited data focus in NZ.
The Canadian Economy:
The monthly Canadian GDP was disappointing at -.2% vs the expectation of +.2%. Bank of Canada Governor Carney pointed towards rate hikes when appropriate and this will underpin CAD support in the coming months. Later on today manufacturing numbers are released and these are the final focus for the week. Next Friday offers the primary focus for next week, in the form of the employment numbers. Before that come the secondary building numbers on Monday, and trade balance on Thursday.
The Japanese Economy:
A relatively quiet week for economic data. Average cash earnings numbers on Wednesday were stronger than expected, but were of limited impact. Next week is again quiet with just BOJ monetary policy meeting minutes for release on Monday and current account data on Thursday. The weaker global equity markets have ensured that YEN remain in demand across the board, which places further pressure on Japanese exporters, and authorities at the BOJ.
The European Economy:
European employment numbers reached a record level of unemployed this week. The weakness is across the board, including powerhouse Germany. The ECB monetary policy meeting was the focus for the week, albeit the likelihood was for no change. The no change decision saw limited reaction in the short term, but various comments from ECB officials leave the way open for monetary policy easing in the future. Credit downgrades remain a threat across Europe, and will continue to be so as Greece heads into elections. Retail sales numbers are due later today and round out this week. Next week is relatively quiet on the economic data front, with the ECB monthly bulletin, the likely highlight.