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FX Update: The Euro continues to struggle, the AUD out-performs

Written by Edited by Ian Dobbs on November 24th, 2015.      0 comments

Market Overview:
The Euro continues to be sold on any rallies in the current environment as investors fully embrace the idea of an imminent easing at next week’s ECB meeting. Notes released last week detailing the recent ECB meeting discussion showed that some committee members were already willing to move and ease policy at the last 22nd October meeting. In contrast last week’s Fed minutes delivered on expectations signalling the real possibility of a rate hike at the next Fed meeting. The AUD was a material out-performer last week amongst the key majors as odds for another rate cut lengthen, even despite continued pressure on key export commodity prices. The inability to break the key 70c level against the USD in recent weeks despite these pressures serves to heighten the chances of the rally extending in the near future.

The Australian dollar has had a poor start to the week which has seen it give up much of the gains it experienced late last week. Concerns over a China slowdown impacting global demand for key commodities saw the AUD come under selling pressure during Asian trade yesterday. Declines in gold, copper, zinc and iron ore led to a lack of demand for the AUD during the session. Private capital expenditure data due for release on Thursday and construction work data on Wednesday are of interest in Australia this week. Immediate focus will turn to the U.S. tonight with the release of preliminary Q3 GDP data, the RBA Governor is also scheduled to speak later today. Key commodity price movements will continue to be an important driver of sentiment.

New Zealand
The New Zealand dollar has started the week by losing ground yesterday. This came after being weighed down by its trans-Tasman counterpart which lost significant ground in Asian trade on the back of declines in the prices of key trading commodities. Intensifying concerns over a China slowdown impacting global demand led to the latest round of commodity price declines. The NZD had a strong finish to the week last week, helped by generalised USD selling and a surge in the NZX dairy futures. NZ migration data released yesterday showed a net gain in migrants from Australia for the first time in 24 years. Total net NZ immigration rose to record 62,477 in the year to October, immigration continues to be a key concern for the strong local housing market. It is a quiet week locally on the data front with only October trade data on Thursday of any note, this will see the NZD take its cue from offshore developments.

United States
The USD remains well supported this week as the market continues to focus on the likelihood of a rate hike at the next FOMC meeting. Comments from Fed officials on Friday reiterated a December hike message. U.S. data released late last week included the Philly Fed survey which at 1.9 (Nov.) was above the -1.0 print expected, the continuing and initial jobless claims numbers both printed close to expectations. Data released overnight missed expectations however. The November Markit Manufacturing PMI fell to 52.6 from 54.1 (53.9 exp.) and October existing home sales fell 3.4% m/m (-2.3% exp.). Immediate focus for the dollar will be tonight’s U.S. Q3 GDP release, the Richmond Fed and consumer confidence data will also be of interest. There is a raft of data scheduled for release tomorrow night including durable goods data, weekly jobless claims, personal income/spending and house price data amongst others.

United Kingdom
The GBP has ebbed lower in early trade this week weighed down by a soggy EUR as the market awaits the BOE Governor Carney’s testimony to the U.K. Treasury select committee on the recent inflation report later in the week. U.K. retail sales data released late last week disappointed after it fell 0.6% m/m in October (-0.5% exp.), partially reversing September’s rugby world cup inspired boost. The ex-auto fuel sales number fell by 0.9% m/m against the -0.5% fall expected. Public sector borrowing data released on Friday showed an increase in borrowing requirements. U.K. GDP data on Friday is the only other key release of note this week; this leaves the GBP looking to seek direction from the Euro and key U.S. data, including the important GDP data tonight.

The EUR continues to trade poorly this week after the ECB president Draghi gave a dovish presentation to the European Banking Congress on Friday. This reinforced expectations of an easing of monetary policy at next week’s ECB meeting. Draghi noted that whilst monetary policy to date has been effective in supporting the euro area economy, growth momentum and inflation in the euro area were well below their targets and that the risks to the outlook had deepened. Data released overnight showed a surprise to the upside in the Euro-zone flash PMI’s. The aggregate composite at 54.4 (Nov.) registered its highest level since May 2011. The services sector was seen to be outperforming the manufacturing sector, a theme which also registered in the French and German national data. Immediate attention for the Euro now turns to the release of the German confidence IFO and GDP data later today. The remainder of the week will be relatively quiet on the data front, services sentiment and confidence data due for release on Friday are unlikely to excite.

The JPY has had a quiet start to the week this week after the BOJ was seen leaving its monetary stimulus unchanged last week at its latest monetary policy meeting. Data which showed Japan entering its second recession since PM Shinzo Abe took office wasn’t enough to alter BOJ Governor Kuroda’s view that the inflationary trend is improving. The central bank said that “inflation expectations appear to be rising on the whole from a somewhat longer-term perspective”. The increase in monetary base stands at 80 trillion yen currently. Approximately 50% of economists still expect the BOJ to add stimulus by April next year however. Manufacturing PMI data due for release this afternoon is the immediate focus now for the yen before the release of the BOJ minutes tomorrow. The week is rounded off with household spending and inflation data on Friday.

The CAD has firmed in trade overnight on the back of a turnaround in oil prices which lifted after Saudi Arabia repeated its intent to cooperate with OPEC in order to stabilise oil markets. Canadian data released on Friday showed September retail sales falling short of expectations after both the headline and ex-autos number fell 0.5%. Cheaper gasoline prices contributed to the result. October headline inflation data printed largely in line with expectations at 1% y/y although the core number of 2.1% y/y marginally exceeded the 2.0% expectations. A quiet week is expected this week with only low impact raw material and industrial product price data scheduled for release on Friday. Energy market developments will therefore be closely followed.

Major Announcements last week: (Tuesday only)
  • Euro core Inflation (Oct. +1.1% y/y vs. +1.0% exp.)
  • U.K. core Inflation (Oct. +1.1% y/y vs. +1.0% exp.)
  • German ZEW current situation (Nov. 54.4)
  • U.S. Inflation ex. food and energy (Oct. 1.9% y/y on exp.)
  • NZ GDT Price Index -7.9%
  • U.K. Retail Sales (Oct 3.8% y/y, vs. +4.2% exp.)
  • U.S. Philly Fed Survey 1.9 vs. -1.0 exp.
  • Canadian core Inflation (Oct. 2.1% y/y vs. 2.0% exp.)
  • Canadian Retail Sales (Sep. -0.5% m/m vs. +0.2% exp.).