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FX Update - Quiet Easter Holiday Trade

Written by Ian Dobbs on March 29th, 2016.      0 comments

2:15pm(NZT)
Market Overview:  
Trade has been quiet since our report last week as liquidity and interest reduced over the Easter holiday period. Flow earlier in the week was dominated by the terrorist attacks in Brussels which saw investors move towards the safety of the USD and JPY in lieu of more risky currencies like the NZD and AUD. The USD received further support from the upbeat commentary from various Fed officials over the course of the week, many of whom alluded to the possibility of earlier Fed rate hikes than the present consensus. Look for interest to increase this week however in the lead up to the key data flow on Friday which will be dominated by the US Non-farm payrolls employment report for March.

 
Australia
News emanating out of Australia has been largely lacking since our last report, although the AUD did pick up briefly last week after the delivery of an upbeat speech from RBA Governor Stevens. The Governor noted that the Australian economy was adjusting well to lower commodity prices and that Australia had more monetary and fiscal ability to respond to a global downturn that most countries. The AUD eased over much of the balance of the week on the back of softer key commodity pricing, moderate risk selling after the Brussels terrorist attacks and hawkish comments from various US Fed official speakers. Slight gains have been seen this week so far after weaker than expected US data released overnight. It is another relatively quiet week this week ahead of next week’s RBA meeting. Data releases include HIA New Home Sales and Private Sector Credit numbers on Thursday and the AIG Manufacturing index on Friday.
 

New Zealand
Trade in the NZD has been understandably quiet since our last report. Pricing slipped into the Easter holiday break on the back of moderate risk selling after the Brussels terrorist attacks and after relatively upbeat talk on the US economy from various Fed speakers last week (USD+). Declines in oil and iron ore prices placed  pressure on the key commodity currencies like the NZD and AUD. Supply fears continued to dominate oil market pricing after a US report last week which showed that crude oil inventories had built to their highest levels in eight decades. Local trade data for February released on Thursday beat expectations on the back of improved export numbers, although as expected failed to make any impact. Key US data released on Friday included a miss in the Core Durable Goods Orders and Q4 GDP data which beat expectations. Weaker than expected PCE inflation numbers, a downwards revision to consumer spending gains (Jan) and a cut to a Q1 GDP forecast from the Federal Reserve Bank of Atlanta has put the USD on the back-foot in trade overnight. It is another quiet week locally with Building Consents and the ANZ Business Outlook scheduled. US employment data will be the focus for the market at the end of the week.
 
 
United States
Moderate gains were noted for the USD last week after our last report on Tuesday. Upbeat comments from various Fed members dominated the sentiment shown towards the USD, this as some spoke of the case for earlier rate hikes than that priced in by the market. Data released later in the week included much better than expected Richmond Fed Manufacturing numbers which jumped sharply from the month prior, a slight miss in the latest Markit Manufacturing PMI print and a miss in monthly new home sales. Core Durable goods and Services PMI data failed to match their respective consensus estimates, although the Q4 GDP print was 0.4 ppts higher than estimates. The USD has begun this week on a soft footing after overnight numbers which included a downgrade to the January personal consumption spending data and a weaker than expected print for the Fed’s preferred core PCE deflator (an inflation indicator). This week’s US data wrap is dominated by Friday’s release of the March Non-farm payrolls employment report.
 

United Kingdom
Contrasting fortunes have been noted for the GBP since our report last week. Initially declines were seen after a weaker than expected UK inflation report and on the back of raised “Brexit” fears after the Brussels terrorist attacks. Concern over refugee immigration continues to be one of the leading arguments currently for the pro EU exit camp. The GBP was bolstered later in the week by a better than expected UK retail sales report, this helped overcome the continued slide which had been seen earlier as the USD lifted on the back of hawkish Fed member comments. The GBP has rallied sharply in trade this week largely on the back of a lower USD which has eased in overnight trade on the back of downwards revisions to US personal consumption spending and a less than expected rise in the Fed’s preferred measure of inflation. The UK calendar this week is dominated by Q4 GDP numbers on Thursday and the BoE Financial Policy Committee statement which is due for release tonight.
 

Europe
Trade in the EUR was largely quiet last week heading into the Easter break although interest spiked on Tuesday after the terror attacks in Brussels. This saw the EUR sell-off in what was the busiest day for data releases during the week. Data released during the day included larger than expected rises in the aggregate euro-zone flash PMI’s and a lift in the German IFO business sentiment survey. Later in the week comments from the Bundesbank President were noted after he said he was not happy with the recent degree of ECB easing earlier this month. The EUR was risen in trade this week against the USD on the back of data overnight out of the US which showed the Fed’s preferred measure of inflation running at levels less than expected, a downgrade to US personal consumption numbers for January added to the pressure being placed on the USD. The calendar out of Europe is quiet this week with the main focus being on the scheduled monthly regional inflation reads.
 

Japan
The JPY continued its trend of easing against the USD last week after our last report. Data released during the week was slight, but included a miss in the March manufacturing PMI numbers and core inflation. The headline inflation number beat consensus forecasts however, rising 0.3% in the year to February helped by the rising cost of food. Hawkish comments from various Fed members saw the USD lift over the course of the week. A close on its highs against the JPY was noted after a better than expected US Q4 GDP report on Friday. Data out in recent hours showed household spending rising more than that expected and the unemployment rate rising to 3.3%, marginally above the 3.2% consensus expectations. The latest retail sales print fell well short of that expected. Data to feature later in the week includes Industrial Production figures (tomorrow) and the Tankan Manufacturing/Industry Capex data on Friday.
 

Canada
External factors have driven pricing in the CAD since our last report, although holiday trade has ensured relatively muted moves in the interim. Prices eased last week against the USD over the balance of the holiday week on the back of a slide in oil prices which lurched lower after a US report which showed crude oil inventories at 80 year highs. Prices recovered on Friday after data which showed the number of oil rigs drilling in the US resuming their steadily trending decline. Upbeat comments from US Fed officials bolstered the USD although the CAD has benefitted in recent trade on the back of an easing USD which fell after softer US numbers and a downgrade to US Q1 GDP estimates. Local data scheduled this week includes GDP and RBC Manufacturing numbers on Friday, both of which are likely to take a back seat to the key March US employment data due for release on the same day.
 

Major Announcements last week: (Tuesday only)
  • German IFO Business Climate, 106.7 vs. 106.0 exp. (Mar.)
  • EU Markit Composite PMI, 53.7 vs. 53.0 exp. (Mar.)
  • UK Inflation, 0.2% vs. 0.4% exp. (Feb.)
  • US Markit Manufacturing PMI, 51.4 vs. 51.8 exp. (Mar.)
  • US New Home Sales, 2.0% vs. 3.2% exp. (Feb.)
  • NZ Trade Balance, 339M vs. 50M exp. (Feb.)
  • UK Retail Sales, -0.4% vs. -0.7% exp. (Feb.)
  • US Core Durable Goods Orders, -1.0% vs. -0.2% exp. (Feb.)
  • US Q4 GDP, 1.4% vs. 1.0% exp.
 

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