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FX Update : UK/US inflation, UK/AU employment, FOMC/ECB/RBA minutes to feature

Written by Ian Dobbs on May 17th, 2016.      0 comments

Look for another busy week in the currency markets this week, starting with inflation data from the UK and the US in the next 24 hours. Headline and core inflation has been picking up recently in the UK ,whilst in the US  pressures also persist as firming energy prices and a weaker USD look set to support food and energy inflation. Employment data from the UK and Australia also feature during the week. Expect a manufacturing slowdown and ‘Brexit’ uncertainty to weigh on hiring in the UK, whilst in Australia the jobless rate is expected to stay largely unchanged at 5.7/5.8%. The US FOMC minutes to the 26/27 April meeting look set to dominate the central bank space and are expected to reflect the asymmetric balance of risks of policy at the lower bound as a key issue and a Fed that is no hurry to hike rates.

Trade in the AUD has reversed its initial weakness that was seen in opening trade this week. Opening lows were observed after the release of weaker than expected Chinese data over the weekend. This had followed on from a soft close last week after the release of better than expected key US data on Friday. Data released last week was light with the highlight being the bounce in consumer confidence which rose to its highest level since January 2014. Australian housing finance was slightly stronger than expected in March driven by lending to new property investors. ANZ Job Ads were seen slowing in April and is consistent with a moderation in employment growth following last year’s surge. However, overall the week was defined by continued bearish sentiment towards the AUD which reflects growing expectations for up to two more rates cuts in 2016 (to 1.25%). Looking to this week we have the RBA minutes today (likely little impact), which will be accompanied by the April new motor vehicle sales data. A speech from the RBA Assistant Governor in Beijing and Q1 wages data are both due tomorrow, although the primary focus will be the April jobs market data which follows on Thursday.

New Zealand
The NZD is drifting in current trade and sits largely unchanged since our report on Friday. Pricing in the interim continued lower initially after the release of better than expected key US data later on Friday and the release of a set of weaker than expected Chinese figures at the weekend. Gains have come in recent hours on the back of a stronger CRB commodity index which has been boosted by a further rise in the price of oil. This comes as rising demand coupled with supply outages look likely to put the market into a supply deficit much earlier than expected. Last week was a mixed one for the NZD which took a boost from its early week weakness on the back of the RBNZ Financial Stability Report. This report failed to introduce further measures aimed at tackling the rampant housing market. The NZ dollar gains came as the market had perceived that such measures would allow further room for the RBNZ to cut rates to address the overall soft inflationary pressures. Retail sales data for Q1 marginally underwhelmed, although the earlier electronic measure of retail sales had exceeded the consensus. Looking ahead to later this week we look forward to inflation expectations data today and the latest in GDT dairy pricing tonight, producer price data for Q1 is set for release tomorrow.

United States
The USD has had a quiet start to the week this week so far after having finished last week around 0.75% higher. Much of the gains occurred on Friday as the tame data week heated up with the release of strong April retail sales and UOM Consumer Sentiment numbers. The important retail control series watched by the FOMC printed three times higher than expectations. News of less interest earlier in the week included a strong reading for job openings, although unemployment claims also rose in the week to May 7. Small business optimism was up in April whilst overnight saw the release of the volatile NY Empire Manufacturing survey which disappointed as it left the 3 month average flat. Further overnight data showed that confidence amongst US home builders was stable as the NAHB housing index remained at the same level, a state it has been at for 4 months. Comments from the Fed’s Lacker added to those from last week which pointed to the case for rates hikes, in this case as early as June. Looking to data this week ahead we have inflation, housing starts and building permits today. Further releases include industrial and manufacturing production data, the FOMC minutes to the April meeting on Wednesday, and the Philly Fed Manufacturing survey amongst others.

United Kingdom
Dominating the event landscape last week were the Bank of England (BoE) releases on Thursday. Universal board agreement was seen as rates were kept on hold and asset purchases levels maintained at the current levels, although the BoE Inflation report contained a lowered estimate for this year’s GDP. Governor Carney noted the limited ability of the central bank to respond to a Brexit given current rate settings. Carney was criticised in the media for mentioning the possibility of a recession in response to a question on the issue and comes as the media/politicians have criticised him for siding with the scare-mongering EU Remain camp. Data released last week included moderating Halifax House price growth and industrial/manufacturing production numbers which failed to deliver on expectations ahead of the June Brexit vote. Data this week starts with inflation numbers today which are expected to show an easing from the month prior. Employment data is due tomorrow and will be followed by retail sales numbers on Thursday.

The EUR has started the week on a quiet note in holiday effected trade yesterday. Last week saw the Euro drift for most of the week as the initial data was mainly second tier in nature. Declines were observed at the end of the week on the back of better than expected US data and euro-zone numbers on Friday which saw Q1 growth revised down slightly to 0.5% from an initial estimate of 0.6%. Releases earlier in the week included strong German factory orders and current account numbers. There was also notable misses in German industrial production and French manufacturing production data, both of which were reflected in the later euro-zone numbers. This week is set to be a relatively quiet one in Europe with revised inflation numbers due tomorrow whilst Thursday will see the release of the ECB minutes to its April meeting.

The JPY is drifting in current trade against the USD this week. Data releases were again light last week which saw pricing change little after the initial JPY weakness witnessed earlier in the week. The minutes to the BOJ March monetary policy meeting was the highlight of the week, although these caused little fuss as the board indicated their divisions in opinion for interest rate settings. Data included better than expected average cash earnings and March current account numbers which hit expectations. Japanese stocks began this week on a positive footing after reports at the weekend (later denied by a government spokesman) circulated that PM Abe has decided to delay a sales tax scheduled for next year in light of the weak current economic conditions. This week will be more interesting on the data front and starts with capacity utilization and industrial production numbers today. Further releases of interest include Q1 GDP numbers and the lesser core machinery orders data for March.

The CAD is firming in current trade against the USD on the back of further gains in the price of oil, which again legged higher in trade overnight. The gains come as forecasts for demand overwhelming the current supply overhang are brought forward on the back of increased global demand and severe supply outages in many key producer countries. Recent estimates put the outages at up to 3.75 million barrels a day (IEA surplus 1.5 million in 1H2016). This comes as fires in Canada combine with attacks on Nigeria’s oil infrastructure and a Venezuelan oil sector which is struggling under a huge debt load and a collapsing economy. Canadian data releases had little impact on the CAD last week given their light nature. They included April housing starts which matched the consensus, and new house prices which lifted moderately (marginally beating expectations). Data to look forward to this week includes manufacturing sales today and wholesale sales (Thursday). Retail sales and inflation numbers will dominate the data focus and are due on Friday.

Major Announcements last week: (Tuesday only)
  • Canadian Housing Starts s.a., 191.5k y/y vs 204.3k prior (Apr.)
  • Chinese Inflation, 2.3% y/y vs. 2.4% exp. (Apr.)
  • German Industrial Production s.a., -1.3% m/m vs. -0.4% exp. (Mar.)
  • Australian Westpac Consumer Confidence, 8.5% vs. -4.0% prior
  • UK Industrial Production, 0.3% m/m vs. 0.4% exp. (Mar.)
  • UK Interest Rate, 0.5% as exp.
  • NZ Q1 Retail Sales ex Autos, 1.0% vs. 1.4% prior
  • EU Q1 GDP s.a., 1.5% y/y vs. 1.6% exp.
  • US Retail Sales, 1.3% m/m vs. 0.8% exp. (Apr.)
  • US Retail control, 0.9% vs. 0.3% exp. (Apr.)
  • US Reuters/Michigan Consumer Sentiment, 95.8 vs. 91.0 exp. (Apr.)