Australia
As we expected there was little discernible market reaction to the Australian Federal Budget, other than the reduction in banking stocks suffered as news of the new tax leaked out earlier in the day. Rating agencies will now be casting an eye over the underlying cash balance projections to see how robust these projections are, it is equally unclear how they will see the new bank tax and what it means for growth and risk. Earlier today Moody’s rating agency noted that although the budget supported their assessment of Australia’s high fiscal strength, the deficit would likely to be wider than the Australian government expects. They also commented that they believed revenues would not rise as fast as the government forecasted and that expenditure would remain higher than that budgeted.
March retail sales data released earlier this week, was weaker than expected showing a 0.1% fall, against expectations of a 0.3% increase, the third decline in the last 4 months. The Australian dollar was sold off to 0.7325 the lowest level since January on the disappointing result. The AUD/USD has made a minor recovery from these lower levels over the last couple of days and is now consolidating between 0.7350/80 tone is soft as metal prices weighing and a generally stronger US unit. The risk remains to the downside, although a move and hold above 0.7400 could signal an extension higher.
New Zealand
The New Zealand Dollar was the weakest performing currency over the last 30 hours after the RBNZ left rates unchanged at 1.75% yesterday. The NZD dropped to a 6 month low of 0.6820 soon after the release a 12 month low. The long term inflation expectations seem to be well anchored around 2% with growth remaining positive amid population spikes, household spending and construction. Property prices have slowed but may continue to rise given the demand for properties from offshore buyers and immigration still outweighs supply. NZD Currency depreciation is encouraged with further drops expected which will no doubt boost the excitement for exporters. Support now seen at 0.6650, expect the NZD do drift lower through to the weekly close.
United States
The ongoing drama that is the Trump presidency continues to make headlines. Although the firing of FBI Director Comey saw a mild sell-off in the USD, markets soon re-focused back on economic data, with April producer prices showing a gain of 0.5% against an expected 0.2% and jobless claims continuing to stay down near 40 year lows. The better data reinforces the potential for a Fed rate hike next month and saw US equity markets come off record highs, but losses were pared back towards the close of the US session on a rise in crude oil prices above US$48/brl. The USD has strengthened over the last few days with the EUR/USD having dropped from a 1.1013 high earlier in the week to current levels at 1.0868. April CPI figures for the US will be released later tonight which if solid may see the EUR/USD break below 1.0820 which would confirm a leg lower into the 1.0750/70 region. This view would be negated by a move and hold above 1.10.
United Kingdom
UK news continues to be dominated by the upcoming general election. The ruling Conservative party of Theresa may received a boost over the last few days as the Labour Party manifesto was leaked. It showed a far more socialist based policy than expected and according to some economists Labour’s plans for borrowing and tax rises will only raise GBP 60 billion, leaving a huge GBP 30 bio gap in their spending plans. The Bank of England was expected to forecast steady economic growth over the year ahead showing GDP bouncing back from a slow start to the year, upgrading growth and inflation expectations, in last night’s inflation report. Instead, the BoE lowered its 2017 GDP forecast to 1.9% from 2% and attributed the entire recent pickup in inflation to the weak currency. Governor Carney focused on the weakness of household spending and GDP and emphasized that domestic costs and wages remain subdued. He indicated that while wage growth would most likely accelerate, the pickup is not expected to be exceptionally fast. However immediate losses in the GBP were limited as aside from their expectations for stronger wage growth, they also expect the output gap to close in time and for global demand to support trade activity. This may lead to a tightening in U.K. policy, more than the yield curve implies. With that in mind, the BoE’s forecasts are based on a rate increase by Q4 of 2019. So while the central bank sees the improvements in the economy, they don’t want to sound overly optimistic because everything hinges on a smooth Brexit. On the more dovish BoE report and softer March industrial production data , the GBP/USD fell to 1.2848, the week low, overnight but has now recovered to the 1.28890 level but resistance around 1.3000 looks solid and 1.2830 provides support on the downside.
Europe
With election fever at rest, until least until next month’s French legislature elections, focus is back on things economic. Data on the whole continues to be EUR supportive with tonight bringing release of German GDP for Q1 and April inflation figures. With no change yet to the ECB stimulatory monetary policy we look for the EUR to continue its downward drift against the USD, although political ructions in the US they have given some temporary disruption to this trend. Political issues aside what remains clear is that the ECB and US Fed remain on divergent tracks and with the strong likelihood of a Fed rate increase next month, this divergence is set to widen, making significant gains above 1.1000 for the EUR/USD increasingly tougher.
Japan
The Japanese Yen has come off its high of 114.35 Thursday posting losses after the North Korean ambassador to the UK said the country will proceed with its sixth nuclear test. The Japanese current account surplus fell to JPY 1.73 trillion, short of the estimate of JPY 1.75 trillion. It’s been a rough couple of weeks for the Yen with only one day in positive territory against the US dollar. The firing of the FBI Director Comey earlier in the week dropped the US Dollar out of favor, the yen rallying back below 113.70 before settling at 114.00. Limited Japanese data published next week with emphasis on US CPI and Retail figures tomorrow for further direction. 115.00 resistance and 108.00 support.
Canada
The Canadian Dollar traded through to a high of 1.3770 Thursday but has since settled around 1.3700 levels. Risk was to the downside with the Toronto Stock Exchange closing down almost 1% and Moody’s downgrade of the Baseline Credit Assessments and Counterparty Risk Assessments. This was the reflection of a more challenging environment for Canadian banks to the end of this year. Oil is back up above 47.00 per barrel also pushing the CAD lower. Locally we have Canadian Manufacturing monthly sales figures, based on recent month’s weak figures we may see the trend continue. Technically the CAD is still locked into the channel from the low of 1.2430 and may test 1.40 the figure.