The Australian dollar has had another good week buoyed by upbeat minutes from the Reserve Bank of Australia, increasing gold and iron ore prices, and supportive local data. The RBA minutes had a definite positive tone to them noting economic data for the second quarter had generally been positive. The also highlighted improvements in the labour market and the fact that fiscal policy will be more expansionary in 2017/18 that previously thought. They said stronger infrastructure spending will have significant positive spill over to the economy. Yesterday’s employment data backed up their view with some solid figure. Although the headline gain of 14k was pretty much bang on expectation, digging into the detail showed full-time jobs grew by a whopping 62k, while part time employment declined 48k.
The monthly numbers can be volatile so the trend numbers are a better indication of what’s really going on. That being said, over the past year trend employment has increased by 227,000 jobs, which is the right in line with the average year on year growth for the past two decades. The only release of note next week is inflation data which hits the wires on Wednesday.
The New Zealand dollar has struggled to gain much traction this week undermined by a soft inflation reading on Tuesday. The flat outcome for the June quarter was below expectations for a 2% gain and as such it immediately weighed on the local currency. The latest Global Dairy Trade auction on Tuesday night didn’t create any real waves with prices showing small gains in both the overall index and the key whole milk powder component. In the past couple of hours we have seen net migration data and once again annual migration has set a record high at 72,300 people. Expect this to be a key topic come September’s election. Visitor numbers too set a new record over the past year, no doubt boosted by the Lions tour. Next week is a very quiet one in terms of economic data with only the trade balance on Wednesday of any note. Action in the wider market, and particularly the USD, will likely dictate direction for the NZD over the coming days.
Economic data out of the United States this week has taken a backseat to developments on the political front. The big news was that the revised Republican health care bill was effectively dead in the water without the numbers to pass. This caused significant broad based selling of the United States dollar as the market questioned the ability of the Trump administration to be able to pass any of its key objectives. Most importantly, what does this mean for Trump’s proposed tax reform? There is a general consensus that without tax reform the GOP could lose their majority in the House, and that would mean even less chance of Trump being able to achieve anything during his term. Congress also has to agree to raise the debt ceiling again by September, or October at the latest, and that doesn’t look like it will be a walk in the park. The USD looks likely to remain on the back foot for the time being with political concerns front and centre. Next week along with the FOMC rate statement we have Durable Goods Order and Advance GDP data to digest.
The UK Pound has seen some pressure this week weighed on by softer than forecast Inflation data. The Consumer Price Index (CPI) came in at 2.6% year on year, below the expectation of 2.9%. Month on month the result was flat vs a 0.2% increase. The main contributors to the fall in the rate was fuel and recreational goods and services. Although this particular result came in softer than forecast, the bigger picture remains the same, that is that the fall in the UK Pound over the past year is slowly pushing up prices. That looks set to continue over the coming months. Last night we got the latest reading on retail sales. Sales came in at +0.6% for the month of June against an expectation of +0.4%. That better data only provided a short term boost for the GBP that quickly found itself under pressure again. Brexit concerns seem to be weighing on the GBP with both parties seemingly miles apart on all fronts.
The main event out of Europe this week was last nights ECB meeting. No changes to the current policy settings were expected and that’s exactly what the central bank delivered. The Euro however has gained some ground in the wake of President Draghi’s press conference. Draghi tried hard to sound dovish talking about “substantial amounts of stimulus still needed” and “underlying inflation yet to show convincing signs of pick up”. His goal was clear however, he didn’t want to see the EUR rally strongly. But the market can see through his thinly veiled attempts to keep the EUR down, and the big picture is that of an improving Euro area economy. The central bank’s own assessment is that current information confirms the strengthening of the economy has been broadening. They say survey data points to solid, broad based growth in the period ahead. In the absence of some unforeseen economic shock, the next move from the ECB will be to start to wind back stimulus. That isn’t just around the corner, at least not if Draghi is to be believed, but the market is starting to price it in regardless.
The focus this week in Japan was on yesterday’s Bank of Japan (BOJ) Monetary Policy Statement. In recent years the BOJ have thrown absolutely everything, including the kitchen sink, into the task of trying to drive inflation up to 2%. So far they have been unsuccessful and they’ve once again decided to move the goalposts. They are now delaying the timing of reaching their 2% goal until 2019. It seems in Japan at least, monetary policy alone is not enough to raise inflation in a meaningful way. What is desperately needed is structural reform, something PM Abe has so far failed to deliver on. Aside from shifting the goalposts re the inflation target, there was nothing of interest in the release BOJ release. It went largely as expected with no change in monetary policy, and a slight upgrade to the economic outlook, while a slight downgrade to the inflation outlook. The Yen had almost no reaction.
After last week’s fireworks in the wake of the BOC interest rate hike, the Canadian dollar has been somewhat more subdued this week. To be fair there hasn’t been a lot for the market to focus on the just foreign Securities Purchases and Manufacturing Sales data released so far. Both those came in a touch stronger than forecast. Tonight however there is plenty of potential for some further volatility with inflation data and retail sales figures set for release. Inflation is expected to come in at -0.1% month on month, while retail sales are forecast to be flat. Next week the market can look forward to Manufacturing Sales numbers along with GDP.