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FX Update : Focus on Jackson Hole meeting this week

Written by Ian Dobbs on August 23rd, 2016.      0 comments

Focus for this week for the markets will be on the annual Economic Symposium held from the 25th-27th (August) at Jackson Hole Wyoming in the United States. The meeting is noted for its attendance by key central bankers and is where investors will look for any comments which indicate a change in current central bank thinking. Key on investor’s minds will be whether the US can extract one more rate hike this year or not, especially in light of the recent Fed member comments that have suggested we are close to reaching the requirements for a move. Comments from the BOJ will also interest, especially around the further intrusive monetary policy steps which can be taken to reduce the current Japanese economic malaise.
This week has started quietly for the AUD which has seen it drift lower since Friday on the back of USD supportive comments from the Fed’s Fischer and Dudley who spoke of the US economy being close to target for the next hike. Last week was dominated the RBA minutes and Thursday’s July employment data. The former helped local currency demand largely on the back of the additional doubt cast over the likelihood of further RBA rate cuts. July’s employment gain whilst beating overall expectations for the month was dominated by a large gain in part-time positions which came at the expense of full-time job losses. The data highlights that the current cycle continues to focus job gains on part-time roles (of which some 190k have been added in the last year) as jobs rebalance away from the mining sector towards sectors such as hospitality. Data released during the week saw wages lift 0.5% in Q2, and 2.1% annually. The annual number retained the moderation which has been seen since the 2.4% noted in Q3 2014 and comes as private sector wage inflation runs at less than half the annual 4% rate seen in Q1 2011. Expect a quiet week locally with only construction work and private capex data numbers of any note.

New Zealand
A lack of incoming local and US leads has seen the NZD drift in recent trade since Friday although a brief spike has been seen this morning following Governor Wheeler’s comments on the role of monetary policy this morning. Last week was a positive one for the kiwi helped by solid local indicators and a lower greenback. Key to the demand was the better than expected result from the latest GDT dairy auction which saw prices jump sharply, most notably so the important price of whole milk powder. Jobs data released on Wednesday added to the positivity as employment grew by a faster than expected rate in the latest quarter, although changes to the survey methodology clouded the otherwise solid result. Other items of interest included a decline in consumer confidence and visitor arrivals data which rose 14.4% in July. The arrivals figures were the highest on record for the month (and largest gain since 2004) and comes as New Zealand’s largest earner (tourism) continues to be a large player in the economic growth story. Look for a quiet week with just local trade data due tomorrow. Key focus will come from the US especially towards the end of the week as traders look to the gathering of central bank leaders at the Jackson Hole Economic Symposium.
United States
Central bank member chatter has dominated the news out of the US since Friday. Comments included those from Fed member Fischer who noted the Fed is close to hitting its targets for full employment and 2 percent inflation. Those of the Fed’s Williams noted that the September meeting was “in play” was a message aimed at current market pricing of a prolonged period of rates on hold. The comments echoed the theme of earlier in the week when other members Dudley and Lockhart delivered similar messages.  Attention of the markets this week will be on another US central banker, this time Fed Chair Yellen who will speak at the Jackson Hole meeting of central bankers on Friday. Data released last week out of the US was mixed. Inflation numbers failed to meet expectations on the back of weak energy prices whilst the latest housing starts numbers rose to levels near the post GFC highs. Building permits pointed to weakness ahead whilst numbers from the manufacturing sector included a disappointing NY Empire State and an on expectation Philly Fed survey. Releases this week start with numbers on new home sales and manufacturing today and house prices/existing home sales on Wednesday. Releases later in the week include durable goods orders and the second read of the Q2 GDP (amongst others).
United Kingdom
Last week was an interesting one for the UK which saw the release of key indicators on employment, inflation and from the retail sector. Data on inflation showed a slight easing in July although remained stable at 1.3% y/y at the core level. Data from the labour market showed benefit claimants falling unexpectedly in July. The figures are the first official measure on the labour market since the shock 23rd June decision by UK voters to leave the EU. Whilst positive, rules on how long employers must give notice to employees they intend to dismiss may mean there is a delay in any impact from the vote. Other data which showed a recovery in the loss of confidence by households over their finances suggest consumers may be taking the referendum result in their stride. Data from the retail sector was strong although may have reflected the increased spending power of the tourist dollar given the pound’s recent plunge. Data from the IMM showed that as of 16 August speculators had continued to increase their bearish bets on the pound which would help explain the extent of last week’s GBP rally against the greenback. Look for a quiet week this week with focus to centre on Friday’s second read of the UK Q2 GDP and on any comments coming out of Jackson Hole.

Last week saw the Euro gain for much of the week on the back of a weaker USD and after the ECB’s July meeting accounts which confirmed that the ECB was in a wait-and-see mode. Council members noted the Brexit downside risks and underlying inflation which has “failed to show a convincing upwards trend”. The high current level of economic slack and weak wage and pricing pressures were seen as giving rise to the need for discussion on the time horizon of the accommodative monetary policy stance and suggest an ECB which looks likely to deliver further guidance on its QE programme by the end of the year. Data last week of note included the German ZEW survey of confidence which beat expectations. EU trade data for June also outperformed the consensus whilst the latest EU numbers on inflation were slightly softer than expected on a headline basis. Data this week starts with various PMI indicators today, Q2 German GDP tomorrow and the German IFO business survey on Thursday. Focus on Friday will be on any comments coming out of the Jackson Hole central banker meeting including those of the current Fed Chair Janet Yellen who is set to deliver a speech on future monetary policy framework design.

There have been few fresh leads for the Yen in recent trade which has seen it continue to teeter around the 100 handle against the greenback since Friday. Comments from Fed members provided some support for the USD on Friday whilst focus in Japan is on this weekend’s meeting of central bankers in Jackson Hole Wyoming and the prospect of BOJ intervention should the Yen continues its recent gains against the dollar. Last week’s indicators of interest included the second GDP release at the start of the week which failed to match expectations as business spending again hampered any gains. The latest industrial production and capacity utilization data beat consensus expectations whilst the better than expected trade surplus for July was the result of exports which declined less than imports, the data compared well with the deficit posted for the same month a year earlier. This week should be relatively quiet until the end of the week. Expect data from the manufacturing sector this afternoon, comments from BOJ Governor Kuroda also this afternoon although expect attention to be on any remarks coming out of Jackson Hole in regard to what more the BOJ can do when it next meets on the 21st of September.

This week has started poorly for the CAD after once again it has been at the mercy of gyrations in the price of oil. Oil prices were seen falling 3% in trade overnight on the back of concerns over Chinese fuel exports, a rising US oil rig count and additional shipments of crude from Nigeria and Iraq. Analyst reports also poured hot water on the talk of a supply agreement next month and pointed to the recent bounce as being technical and position based rather than reflecting any new fundamentals. Local economic leads from Canada last week were concentrated on Fridays’ retail sales and inflation releases. Both numbers came in under expectations, most notably so the retail sector data which fell against expectations of a gain as the food and beverage input weighed. The July inflation data showed a 1.3% increase year-on-year and slowed to its lowest rate in four months on the back of falling gasoline prices. Wholesale Sales numbers released overnight rose by a larger than expected 0.7% in June although like the other indicators mentioned has failed to have any impact against the overbearing influence of oil pricing.

Economic Events.
  • Japanese Q2 GDP, 0.2% Annualized vs. 0.7% exp.
  • Japanese Industrial Production, 2.3% m/m vs. 1.9% prior. (Jun.)
  • UK Inflation, 0.6% y/y vs. 0.5% exp. (Jul.)
  • German ZEW - Current Situation, 57.6 vs 50.0 exp. (Aug.)
  • US Inflation, 0.8% y/y vs. 0.9% exp. (Jul.)
  • NZ GDT Dairy Prices, +12.7% vs +6.6% prior.
  • NZ Q2 Unemployment Rate, 5.1% vs. 5.3% exp.
  • UK Claimant Count Change, -8.6k vs. +9.5k exp. (Jul.)
  • Australian Employment Change, 26.2k vs. 11.0k exp. (Jul.)
  • EU Inflation, -0.6% m/m vs. -0.5% exp. (Jul.)
  • UK Retail Sales, 1.4% m/m vs. 0.2% exp. (Jul.)
  • Canadian Inflation, -0.2% m/m vs. -0.1% exp. (Jul.)
  • Canadian Retail Sales, -0.1% m/m vs. 0.5% exp. (Jun.)