Overview
The main theme of the past week has been broad based US dollar weakness. Dovish comments from Fed officials combined with soft US data have done the damage, but you can also add in the mix the continuation of Trump-Russia hysteria and its negative impact on the administration’s ability to push on with its policy agenda. Will this week be any different? Probably not on the political front, although there is always the chance of a data surprise. During this period of USD weakness the NZD has largely underperformed and as a result it has declined on many other crosses. The Australian dollar on the other hand has made the most of the current environment with gains across the board.
Against the USD on Friday the AUD reached its best level in almost a year. Central bank meetings from the Bank of Japan and the European Central Bank this week will draw focus, although neither bank is likely to suggest they are ready yet to pull back from stimulus.
Australia
Last week’s data from Australia was mostly better than forecast although it was largely a second tier affair. This week however we have a couple of key releases to digest. The Reserve Bank of Australia’s (RBA) minutes hit the wires in the next couple of hours and then on Thursday employment data is set for release. With the economic outlook improving in Australia most forecasters expect the RBA to remain on hold for the foreseeable future, certainly well into 2018. The RBA minutes should affirm this neutral setting. Employment data on Thursday should also be very interesting. The last three months figure have all come in significantly stronger than forecast and another strong print this month would suggest a definite trend of improvement in the job sector. Expectations are for a gain of 15.3k in employment. The previous 3 months readings have been 61.1k, 37.8k and 42.5k.
New Zealand
Last week was a very quiet one on the data front from NZ. The New Zealand dollar largely underperformed most other currencies during the bout of USD weakness we’ve seen. So while the NZD has gained against the USD, it lost ground on many other crosses. This morning we saw the key economic release of inflation data. It came in on the soft side printing at flat. The market was expecting a gain of 0.2%. The prior reading was +1.0%. The data weighed on the NZD which immediately lost half a cent or so against the USD. We expect the NZD to remain under some pressure over the coming days. Tonight we have another dairy auction to digest and then on Friday we get the latest migration data. That should prove interesting with the record high level of migration likely to be a key topic during the upcoming election.
United States
The United States dollar ended last week on a very soft footing hurt by a raft of disappointing data. Inflation came in at flat vs expectations of 0.1%, while retail sales fell 0.2% vs expectations of a 0.2% gain. On top of this we saw University of Michigan Consumer Sentiment fall from 95.1 to 93.1. The USD was already feeling a little vulnerable after somewhat dovish comments from Yellen earlier in the week and once the data hit the screens there was across the board dollar selling. Interest rate markets also reacted and the chance of another interest rate hike by the Fed by the end of this year fell to around 40%. It would now be extremely unlikely we get another interest rate hike before December, and a hike in December at this stage is a coin toss. This week to draw focus we have data on Building Permits, Unemployment Claims, and Housing starts.
United Kingdom
Solid employment data released from the United Kingdom last week was in large part negated by soft wages data. It’s been a similar trend in many western economies in recent years. The Bank of England (BOE) certainly have a tightening bias at the moment, but there are big divisions within the Monetary Policy Committee (MPC) as to the timing of any potential interest rate hike. This week we hear from BOE Governor Carney and the market will be keen to get a better feel for his outlook. Ahead of that speech we have inflation data set for release on Tuesday, then on Thursday we get the latest reading of retails sales.
Europe
Data from Europe last week continued to suggest the European economy is slowly improving and it helped the Euro make significant gains. All eyes this week however will be on Thursday’s main event, the European Central Bank’s (ECB) interest rate meeting. The market is starting to look forward to an eventual exit from the ECB’s quantitative easing policy and it’s hastily bid up the Euro over recent months in anticipation of such an announcement. The market may be getting well ahead of itself though and there is every chance ECB President Draghi will pour cold water on this expectation during his press conference after the meeting. He has stated previously the central bank will fully implement the QE programme and although he’s acknowledged the improving economic outlook, he’s given no hint that QE will be abandoned any time soon. If market expectations are disappointed on Thursday, the Euro could fall. Ahead of the ECB meeting we get Final CPI data and the German ZEW Economic Sentiment Index.
Japan
A Japanese holiday yesterday meant it’s been a quiet start to the week for the Yen. There is little on the calendar until Thursday’s main event being the Bank of Japan Monetary Policy Statement. The Japanese economy is slowly gaining momentum and the BOJ are expected to be somewhat optimistic about the economic outlook. It is however too early for them to make any significant changes to monetary policy at this stage with inflation still far from their 2% target.
Canada
Last week’s hawkish interest rate hike from the Bank of Canada (BOC) lit a fire under the already strengthening Canadian dollar and it ended the week in good shape. Friday then saw the release of the New Housing Price Index and it came in stronger than forecast at +0.7%. While that sounds positive, another metric on the Canadian housing market released last night paints a different picture. House prices nationally are now down nearly 10% from their peak in April. Prices are declining on slowing sales volumes with June activity down 11.4% year on year. It remains to be seen if this is the start of something much bigger for the housing market, which has long been a point of concern in Canada. Longer term there are big questions as to the viability of the current housing market valuations in light of increasing interest rates. Although that’s likely to be a story for 2018 or 2019. Later this week we have inflation data and retail sales figures to draw focus.
Major Announcements
• Bank of Canada hikes interest rates by 0.25%
• US PPI 0.1% vs 0.0% expected
• US Inflation 0.0% vis 0.1% expected
• US Retail Sales -0.2% vs 0.2% expected
• Chinese GDP 6.9% vs 6.8% expected
• Chinese Industrial Production 7.6% vs 6.5% expected
• NZ Inflation data 0.0% vs 0.2% expected