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FX Update - Chinese trade data raises concerns.

Written by Ian Dobbs on April 14th, 2015.      0 comments

Market Overview:
The U.S. dollar has once again dominated this week pushing the EUR, GBP and AUD among others close to recent lows. Shocking Chinese trade data saw commodity currencies in general under pressure yesterday after both imports and exports posted sharp declines. In Europe the focus remains on Greece and deterioration of relations between the country and its creditors. The next few months are going to prove very difficult for the Euro in this current environment.

There has been little economic data of consequence released from Australia since the Reserve Bank of Australia (RBA) decided to keep rates on hold last Tuesday. The Australian dollar has moved back toward recent lows in the wake of yesterday’s Chinese trade balance figures. The trade balance was a huge miss on expectations with both imports and exports falling sharply. Chinese officials are trying to blame the timing of Lunar New Year, but the market is less than convinced. This data raises some real concerns about domestic demand in China while also suggesting global demand may not be a strong as thought. Today from Australia we have business confidence data set for release and this will be followed tomorrow by consumer sentiment. The highlight of the week will be Thursday’s employment change data. The market is looking for a gain in employment of around 15k.

New Zealand
The past week has been a very quiet one on the economic data front for New Zealand. Until this morning, the only release of note had been electronic card spending which isn’t a big market mover. However, the data did show that consumers a feeling pretty confident, obviously buoyed by lower petrol costs, low mortgage rates and increasing house prices. Retail card spending increased 0.8% in March following a 1.1% rise in February. In the past few hours we have seen NZIER business confidence data show static business confidence levels with the index at 23. The only other news related to the government’s finances. It looks like the chance of the government posting a surplus when their final accounts are released in October has declined significantly. Finance minister Bill English released a statement last week saying “low inflation, while good for consumers, is making it less likely that the final accounts in October will show a surplus for the whole year.” Still to come this week we have another dairy auction from Fonterra along with the Business NZ manufacturing index.

United States
The Fed minutes released last Thursday morning certainly showed there is a range of views on when interest rates should start rising in the U.S. Since then we’ve had comments from a number of officials which have only served to highlight the disparities. The Fed’s Lacker said he saw “a pretty substantial amount” of support for a June hike, while Kocherlakota repeated he believes the Fed should delay hiking until the second half of 2016. The Fed’s Williams said that the US still needs accommodative policy right now, but as the economy nears its goals the case weakens for keeping rates low. He believes the U.S. will be at full employment in 6-12 months. We have some key data to digest this week. Tomorrow sees the release of retail sales, then later in the week we get industrial production, building permits, inflation and consumer sentiment.

United Kingdom
Late last week we saw some second tier data come in softer than forecast, which hasn’t helped the UK Pound at all. Disappointing manufacturing and construction data has only served to weight o the Pound has been under some pressure on the back of uncertainty about the outcome of the general election on May 7th. It’s a very tight race and with polls showing increasing support for the Scottish National Party (SNP), a Labour - SNP coalition is a very real possibility. That would be a bad result for the markets and likely see the GBP lose a lot more ground. George Osborne was clear on his views over weekend when he said a Labour - SNP coalition would “trash the economy” and “undermine economic security.” Tonight should prove very interesting with inflation data set for release. There is a very real risk that falling energy costs and a supermarket price war could see inflation below zero for the first time since 1960. It’s going to be close call between 0.0% or -0.1% for the CPI. Later in the week we have employment data to draw focus.

The Euro has remained under pressure the past week weighed on by the Greek situation that is never far from the headlines. The Financial Times published an article saying Greece is preparing to take the dramatic step of declaring a debt default unless it can reach a deal with is international creditors by the end of April. This was quickly denied by Greek officials. EUR 7.2bn of bailout funds that was due to be disbursed last year has been held back amid disagreements between the new Syriza government and its EU and IMF creditors. Relations between the two side have deteriorated so badly that a Greek exit may be inevitable. Even if these bailout funds are released most analysts believe Greece will need a new bailout package of around EUR 30bn to get through the rest of the year. There is going to be very little political will to lend any further funds if the past couple of months are anything to go by. The highlight of this week’s economic calendar will be the European Central Bank rate meeting on Wednesday night.

Yesterday from Japan we saw core machinery orders and producer prices data both print a little better than expected. However, the market impact was limited. The BOJ minutes were also released, but they held nothing new for the market. The BOJ quarterly report was also released and it suggested the regional economies are recovering moderately. The report raised its assessment for three of the nine regions and maintained its assessment for the other six. The biggest market impact came from comments last night by Koichi Hamada, an advisor to PM Abe. He said the Yen at 105.0 to the USD was appropriate on the basis of purchasing parity, and that 120.0 was weak for the Yen. This saw the Yen quickly gain some ground against the USD. The rest of the week looks pretty light in terms of data with only revised industrial production and consumer confidence figures set for release.

Canadian employment data at the end of last week provided something of a pleasant surprise. Canada added 28.7k jobs in March which was better than the forecast for a flat reading. The unemployment rate also remained steady at 6.8% versus expectations of a tick up to 6.9%. Tempering the positive impact of the report was the breakdown between full and part time employment. Full time jobs actually declined by -28.2k on the month while part time employment jumped +56.8k. This week should prove very interesting with a number of key releases. On Wednesday night we have the Bank of Canada (BOC) monetary policy report. No change in interest rates is expected at this meeting, but we may well get an indication of whether another cut could come later in the year. Governor Poloz has described the first quarter of 2015 as “atrocious” and lot of attention will be paid to how quickly the BOC expects the economy to bounce back from the oil shock. Other releases to watch out for this week include manufacturing sales, inflation and retail sales.

Major Announcements last week:
  • US Non-manufacturing PMI 56.5 as expected
  • Canadian Ivey PMI 56.0 vs 50.8 previous
  • Australian Retail Sales .7% vs .4% expected
  • RBA leave monetary policy unchanged
  • UK Services PMI 58.9 vs 57.0 expected
  • BOJ leave monetary policy unchanged
  • BOE leave monetary policy unchanged
  • UK Industrial Production .1% vs .4% expected
Canadian Unemployment rate 6.8% as expected