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FX Update : The BOJ make their mark.

Written by Sam Coxhead on April 9th, 2013.      0 comments

4:45 PM (NZT)

Market Overview:
Last week was all about the aggressive front loading of monetary stimulus from the new BOJ leadership at their first monetary policy announcement. Governor Kuroda certainly did not disappoint. The subsequent pressure on the YEN has been significant and with little respite. Expect this to become a trend in the coming weeks if not months. The two year time frame to eradicate deflation in Japan is a big job, and expect joint policies from the BOJ and the government to be working towards this goal. This week sees just todays benign current account data offer any focus, and next week sees the release of the minutes from last week’s significant monetary policy meeting, and these will be closely watched.

Australia
The RBA maintained their recent "wait and see" approach as they left the cash rate stable at 3.00% last week. The following building approvals and retail sales data certainly supported this stance, with both beating the market expectations. The retail sales number was the most exciting with an upward revision of the previous number adding to the positivity created by 1.3% current monthly increase in activity. This week’s focus will be dominated by Thursdays employment number where a small 6.7k fall in jobs is expected along side a stable unemployment rate of 5.4%.

New Zealand
The NZ dollar has remained in demand over the last week. Any latent re-insurance flow demand for the NZD , has been ably joined by record dairy commodity prices being fetched as the scramble to secure product in the face of a NZ drought induced fall in expected production over the coming season. The latest NZ Institute of Economic Research Quarterly Survey of Business Opinion was released this morning. The sentiment increased to 23 from the previous level of 20, as the outlook remains relatively positive in New Zealand. Also of note has been the ongoing RBNZ warnings over the housing market. Yesterday saw further warnings from deputy Governor Spencer. He stated that "if the house price and credit expansion begin to fuel excessive consumption spending and inflationary pressures, a monetary policy response would become more likely". Certainly something to be kept in mind over the coming quarters. The remainder of the week is light on domestic focus with the Business NZ Manufacturing Survey on Thursday expected to be of limited impact.

United States
Last week saw further weakness in the US economy emerge in what has turned out to be a soft first quarter for 2013. Soft US manufacturing, services hourly earnings and employment numbers were released. The "participation rate " (those actively working or looking for work) fell to the lowest levels since 1979, and is the kind of number that will ensure the FED remain aggressively trying to stimulate the labour market via their ongoing quantitative easing program (buying bonds to lower longer term borrowing costs). The pending lower levels of central government spending further re-iterate this likelihood. This week sees the minutes from the previous FED monetary policy meeting released on Wednesday, and retail sales and consumer sentiment on Friday. The US dollar has seen pressure across the board of late, with the exception of the YEN. Any rebound in this, will likely be aided by a stronger set of economic data, which seems unlikely in the short term.

Europe
Last week unsurprisingly saw further weak economic data emerge in Europe. Manufacturing numbers were led lower by slumps in Spanish and Italian activity. However, there was increasing resilience in the market for EURO, as weak news in the US came to light. The ECB statement accompanying their unchanged monetary policy announcement also added to EURO demand as the sentiment was not as "dovish" as the market expected. The lack of commitment towards a lower cash rate has seen the probability for a cut to the cash rate moved out from the May meeting to the June meeting. This week sees industrial production numbers come to the fore as well as the ongoing influence of Cyprus, Greece and the Italian political standstill.

United Kingdom
Last week was relatively quiet for economic news in the UK. The Bank of England (BOE) left monetary policy unchanged as expected for the most part. The minutes from the meeting next week will reveal whether or not the bias towards further quantitative easing has increased. Manufacturing and construction numbers were lower than expected, but were somewhat balanced by surprisingly high activity in the services sector. Of note also was the re-affirmation of the AAA credit rating by ratings agency S&P. This week is also on the quiet side for economic news, with further manufacturing numbers providing a focus alongside second tier GDP and retail sales indicators.

Japan
Last week was all about the aggressive front loading of monetary stimulus from the new BOJ leadership at their first monetary policy announcement. Governor Kuroda certainly did not disappoint. The subsequent pressure on the YEN has been significant and with little respite. Expect this to become a trend in the coming weeks if not months. The two year time frame to eradicate deflation in Japan is a big job, and expect joint policies from the BOJ and the government to be working towards this goal. This week sees just todays benign current account data offer any focus, and next week sees the release of the minutes from last week’s significant monetary policy meeting, and these will be closely watched.

Canada
All the Canadian economic news came out on Friday last week. Materially weaker than expected employment growth numbers negate the strength from the previous month, and the unemployment rate edged higher to 7.2%. The trade balance was also worse than expected, on the back of lower exports, and increased import demand. Balancing these were stronger than expected manufacturing numbers, and this gave some level of respite to the Canadian dollar that saw periods of intense pressure throughout the week. Yesterday saw the release of the latest Bank of Canada (BOC) Business Outlook Survey and this was a little mixed. The numbers were a little stronger in the near term, but activity for the next 12 months does remain at pressured levels.

Major Announcements last week:
  • The BOJ  make aggressive stance on deflation fight
  • The ECB leave monetary policy unchanged
  • The BOE leave monetary policy unchanged
  • The RBA leave monetary policy unchanged
  • US Manufacturing 51.3 vs 54.2 expected
  • US Services 54.4 vs 55.9 expected
  • AU Retail Sales +1.3% vs +.3% expected
  • UK Services 52.4 vs 51.4 expected
  • UK Manufacturing 48.3 vs 48.9 expected
  • CAD Employment +54.5k vs +6.8k expected 
  • US Employment +88k vs +198k expected
  • CAD Manufacturing 61.6 vs 52.4 expected
Topics: Economic news
 

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