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FX Update : US data and OPEC the focus this week

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

3:00pm(NZT)
Overview
This week is set to be a very interesting one again for the US dollar given the busy data schedule due. Gains in the greenback post the Trump US election win which totalled over 6% at one stage last week have eased this week ahead of a busy data wrap which includes Q3 GDP (today), ISM manufacturing on Thursday and Nonfarm payrolls employment on Friday. Commodity currencies will also be heavily in focus this week, particularly so the CAD as the OPEC oil producers meet in Vienna tomorrow for their much awaited official meeting to agree a production cap limit and individual country production quotas. An agreement (or lack of) looks set to usher in a period of considerable oil price volatility over the weeks ahead. Expect the volatility to flow through to the key oil country currencies like the CAD and NOK when the results become known later in the week.
 

Australia
Last week was largely uneventful for data of note out of Australia. Gains for much of the week were helped by an improvement in the price of many commodities key to Australia. Data released during the week included September quarter construction activity numbers which fell by more than expected and contributed to a year-on-year drop in construction output of over 11%. Consumer confidence eased in the latest week according to the ANZ/Roy Morgan survey. Assistant RBA Governor Kent presented a relatively upbeat view on the economic outlook which echoed that of Governor Lowe the week prior. In focus this week are numbers on new home sales, building approvals and private sector credit (loans outstanding) tomorrow. On Thursday we have numbers on home prices and private capital expenditure/business investment which will be followed by retail sales on Friday. A keen eye should also be kept on the outcome of the OPEC oil producer meeting which will conclude towards the end of the week.
 

New Zealand
Last week was a relatively quiet week for important incoming data. Core retail sales for the third quarter disappointed by rising just 0.3% q/q versus the 1.1% forecast. Migration data showed the number of incoming migrants reaching fresh highs of over 70k in the latest year. Rising exports helped the October trade balance improve, although the marginally better than expected deficit for the month had no impact on trade. Some profit taking on the greenback has helped the kiwi lift slightly in trade so far this week. US dollar sentiment looks likely to again drive trade during the week, although the outcome of the OPEC oil producer meeting could incite volatility in the commodity linked currencies. Local events to watch are mainly tomorrow and include building consents, ANZ business confidence and a speech from RBNZ Governor Wheeler. Expect Thursday’s terms of trade data to create little more than a passing interest.
 

United States
US economic data releases remained solid again last week. Stronger than expected data included results from the Markit Nanufacturing Conditions PMI, consumer sentiment, existing home sales and durable goods orders. Underperformance was observed in the goods trade balance, the services PMI and new home sales, although these releases were low ranking and gained no market traction. The Fed minutes affirmed that rates will rise next month (barring a financial calamity) and that risks to the near-term economic outlook were evenly balanced. Focus this week starts with Q3 GDP and consumer confidence today. Key indicators later in the week include the ISM manufacturing PMI on Thursday and Nonfarm payrolls employment on Friday where expectations are for a gain of around 175k jobs in November.
 
 
United Kingdom
The sterling has started the week on a poor footing after falling in trade overnight (despite a weak US dollar) on the back of comments from the BoE which reiterated that it would look past the first round inflation impacts from the GBP depreciation. Comments from ECB President Draghi that the UK would suffer first if protectionist policies were introduced with the Brexit also weighed on sentiment. Last week contained little data of interest outside of Friday’s revised Q3 GDP report. The 0.5% q/q result was in line with the preliminary estimate (and expectations) and included gains in exports and better than expected business investment numbers which points to a BoE that will keep interest rates on hold. Other data included the CBI industrial trend and distributive trades surveys which both outperformed expectations. Consumer credit expanded at rates near 10-year highs and mortgage approvals lifted to five month highs. This week’s focus includes today’s mortgage and credit data, nationwide house prices and the BoE Financial Stability Report (tomorrow). Manufacturing and construction PMI indicators are due on Thursday and Friday respectively.
 

Europe
It was a relatively quiet week for data in Europe last week. Euro zone business condition PMIs lifted further in November to levels which are consistent with a pick-up in GDP growth to around 2%. The German IFO was unchanged and German GDP growth slowed to half of that seen in the quarter prior. Consumer confidence rose to -6.1 from -8 and was the strongest reading since December last year. Interest remains high around this weekend’s constitutional reform referendum in Italy which could lead to early elections and a rise in support for the populist Five Star Movement (a party which has pledged to have a referendum on whether Italy should remain in the euro area). Reports from the Financial Times indicate that up to eight banks might fail due to an inability to refinance if the PM loses the referendum. Data of interest this week includes various business and consumer climate indicators, regional inflation/GDP reads, euro zone inflation and manufacturing PMI indicators.


Japan
Last week was a relatively quiet one for local influences of note in Japan. This saw the yen continue its recent trend of losses against the US dollar which accelerated after the Trump US election win, although news of a vote recount in 3 key battleground US states has seen the USD/JPY ease in trade this week. Data released in Japan last week included the manufacturing PMI indicator which dipped slightly in November, although current levels still remain above those seen in the middle of the year. Inflation lifted, although the core level remained very weak at just 0.2% year-on-year. Trade numbers released on Monday were mildly disappointing as exports deteriorated. Data this week started with numbers on household spending today which underperformed expectations in October and unemployment which remained steady at 3%. Industrial production will be released tomorrow although expect US dollar sentiment to dictate.
 

Canada
This week in Canada will be all about the outcome of the OPEC oil producer meeting in Vienna which is scheduled to conclude on November 30. Considerable volatility in oil pricing is expected after the announcement. This has oil bulls hoping for a move to cap output around 32.5 million barrels per day (bpd) versus the current 33.64 million bpd output. Details of individual country quotas were also promised to be finalized at the meeting. Canadian data released last week includes underwhelming wholesale sale numbers and on consensus retail sales for September. Economic data scheduled for release this week starts with current account data today. GDP and raw material/industrial product prices are due tomorrow and will be followed by employment numbers on Friday. Manufacturing PMI data on Thursday will be of little interest.
 

Economic Events.
  • Canadian Retail Sales, 0.6% m/m as exp. (Sep.)
  • US Existing Home Sales Change, 2% m/m vs. -0.5% (Oct.)
  • Australian Q3 Construction Work Done, -4.9% vs. -1.7% exp.
  • EU Markit Manufacturing PMI, 54.1 vs. 53.3 exp. (Nov.)
  • US Durable Goods Orders, 4.8% vs. 1.5% exp. (Oct.)
  • US New Home Sales Change, -1.9% m/m vs. 0.3% exp. (Oct.)
  • Japanese Nikkei Manufacturing PMI, 51.1 vs. 51.7 exp. (Nov.)
  • German IFO - Current Assessment 115.6 vs. 115 exp. (Nov.)
  • NZ Trade Balance, -846M m/m vs -1394M prior (Oct.)
  • Japanese Inflation, 0.1% y/y vs. -0.5% prior (Oct.)
  • UK Q3 GDP, 0.5% q/q as exp.
 

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