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Whats happened in relevant economies this week?

Written by Sam Coxhead on March 22nd, 2013.      0 comments

4:24 PM (NZT)
This week saw the minutes from the previous RBA monetary policy meeting further reiterate their "wait and see" approach. There was acknowledgement of a more positive global growth environment in 2013 compared to last year, with both the US and Asian growth looking healthier. The latest Chinese manufacturing numbers were stronger than expected when released yesterday. This news coupled with the lack of leadership change for the ruling Labour party yesterday at the leadership vote, to boost demand for the AUD. Next week is a quiet one for the Australian economy with just a speech from RBA Governor Stevens on Tuesday, and private sector credit numbers Thursday, to offer any level of domestic focus.
New Zealand
It has been a very interesting week for the NZ economy. The latest Global Dairy trade auction results saw another leap higher of 14.8% on a trade weighted basis as the scramble to secure diary supplies amid the ongoing NZ drought continues. This kind of elevated pricing will help alleviate stresses if the trend continues. Also of note was yesterday's belated 4th quarter NZ GDP number. The bonanza 1.5% increase in activity certainly surprised with its strength. The detail reveals a consumer-centric boost in activity that is unlikely to be sustained in subsequent quarters. The NZ dollar saw a muted response initially before being swept higher in the London session along with the Australian dollar. Next week is relatively quiet, with just the latest trade balance and business confidence numbers to provide focus.
United States
The latest FED monetary policy meeting minutes reveal ongoing commitment to the quantitative easing program for this year at least. Growth expectations remain largely unchanged (immaterially lower), and have been a little effected by the slowdown in Government spending. For the most part the remainder of the economic news has also been positive, with the influential Philadelphia FED manufacturing index showing a move back into positive territory. Next week sees the usual flora of economic data due for release, with the latest durable goods sales and consumer sentiment numbers of note.
Of Note:
It has been a very interesting week for the European economy and financial markets. The headache that is Cyprus continues. The slow moving train wreck is frustrating to watch. The parliament voted against the initial EU proposal for deposit taxes and now the economy faces increasing uncertainty. Without EU, ECB assistance it looks like bank failures will follow, and possibly an exit from the EURO for Cyprus. There are many side issues to offer further complexity. The main point is that for the time being it looks like any contagion to other Euro-zone periphery members will be limited. Tensions between heavily invested Russian interests in Cyprus, and European officials are escalating. This complicates the issue as Russia holds materially large EURO foreign currency reserves. Watch this space.
Aside from the Cyprus issues, the economic conditions in Europe remain moribund. In what was a bright note, German economic sentiment was higher than expected. This was not reflected in the worse than expected manufacturing and services numbers which were lead lower by soft components in Germany and France.  Expect the EURO to remain volatile in the coming week, as officials scramble to negotiate the latest challenges. German business confidence numbers round out this week's focus later on today. Next week sees various member retail sales and employment numbers due for release, but expect the Cyprus issue to dominate the focus.
United Kingdom
It has been a very interesting week for the UK economy and the GBP. In the last week or so the GBP has not weakened materially, after negative news. This looks like investor fatigue at selling the Pound Sterling, and is an ominous sign. The European uncertainty has helped support the GBP also, with natural capital flight from Europe to the UK. This week’s BOE monetary policy meeting minutes revealed debate on the effectiveness of further QE, and the concern that the market questions the BOE's attitude to inflationary pressures. These revelations naturally added to the GDP demand, and it provides some flexibility to the BOE in conducting monetary policy going forward. Interestingly the employment numbers were not quite a dire as expected, and the retail sales numbers were materially stronger than expected. Next week the current account and final revision of the 4th quarter GDP numbers will provide the focus.
It has been a mixed week for economic news in Canada. The latest manufacturing numbers were disappointing, but come from a volatile series of data. Yesterday saw the monthly retail sales numbers come in close to expectation at +.5% vs +.4% expected. Next week sees the domestic Canada focus increase. The latest inflation and GDP numbers come on Wednesday and Thursday, ahead of the annual budget on Friday.
This week has seen the changeover of leadership at the Bank of Japan (BOJ). New BOJ Governor Kuroda spoke overnight and offered little of new insight. The market was obviously anticipating more aggressive language, and the YEN has seen some demand in the subsequent session. Next week will see the latest retail sales, household spending, inflation and industrial production numbers released. The next few weeks will be crucial for the new BOJ leadership to stamp their mark on the market expectations. Previous regimes have struggled to convince the market of their intent at times, and this has caused major issues. The current political leadership have created the right expectations, and now action must be forth coming.