Data and news out later in the week was better for Australia and saw the Australian dollar rise over the old AUD/USD resistance level of 0.7400 soaring to a high of 0.7465 yesterday. On Wednesday, ratings agency Standard and Poor’s confirmed Australia’s AAA credit rating, however it continued to leave the nation on negative watch, and suggesting that the Turnbull government may struggle to return to surplus by the forecasted date of 2020-21. Also positive and unexpected was yesterday’s fall in the April unemployment rate to 5.7% its lowest level in four months, expectations had been for a figure steady around 5.9%.
However the increase in job numbers came from part-time employment, which soared 49,000 while full-time employment fell by 11,600. It was a mixed report that augurs poorly for a much-needed revival in wage growth and inflation. Poor fulltime employment figures continue to weigh on the AUD and the AUD was unable to hold the higher levels, selling off overnight against the rebound in the USD. Currently trading around 0.07420 and should hold above 0.7400 to end the week, but only a break of 0.7510 would indicate a bullish trend.
It’s been a positive week data wise for the New Zealand economy, although the NZD has really struggled to make significant gain on the back of the releases. Monday saw much better than forecast retail sales data which printed at 1.5% vs 1.1% expected. This was followed by another solid dairy auction on Tuesday night with prices up just over 3%. That’s the fifth consecutive rise. Many forecasters are now revising up their forecasted pay-outs for the 2017/18 season to $6.50 – $6.75/kg MS. Producer prices on Wednesday also came in a touch stronger than expected at 0.8% for the quarter. Earlier today we got another reminder about how attractive the NZ economy is with migration figures continuing to run at record levels. Net migration in the year to April was a gain of 71,885. The New Zealand dollar has been somewhat lethargic in the face of the strong economic releases and continues to trade within recent ranges.
It has been a difficult week for the US where political turmoil has outweighed any economic data. The Trump trade reversed sharply on Wednesday as equity markets took fright over the possibility of Trump’s impeachment had increased, thus potentially derailing his tax and infrastructure spending policies that would lead to a boost for growth and inflation, selling off sharply on the biggest drop since last September. The USD followed suit and the EUR/USD reached 1.1170, the lowest level for the USD since early November. However overnight buyers emerged for the USD and US equities as data released showed jobless claims and regional manufacturing figures beat forecasts, adding to signs economic growth is on firm footing and that the widely anticipated move by the Fed to increase rates next month remains on-track. Politics should (hopefully !) take a back seat next week as President Trump heads overseas, also the appointment of a special counsel to head up the FBI’s investigation into Russia’s attempt to influence the US election, appears to have acted a circuit breaker of sorts. It may not be sufficient to boost confidence that the Trump Administration’s economic program is back on track, but it looks to be is sufficient to stem the tide for the moment leaving markets to go back to be more data driven.
Sold figures out yesterday for April retail sales, which were up 2.3% over March, double that expected and 4% higher year-on-year. This saw the GBP soar over 1.30 against the USD to the highest level in 8 months. However the FTSE100 extended losses after the retail sales news as the stronger GBP is negative for many of its listed corporates who earn USD denominated income. Commodity based stocks and financials led the downward move. Also adding to the positive tone was news that UK unemployment had fallen to its lowest level in 40 years, although this was tempered by the fact that wages in real terms were falling due to inflation and subdued wage growth. The GBP has failed to hold the higher levels and has now drifted back under 1.30 to 1.2950 on the stronger USD rebound. Support is at 1.2900 with resistance at 1.2995 then 1.3040..look for consolidation at current levels to begin next week.
The Eurozone economy continues to show signs of improvement, with German economic sentiment index results out this week showing that investors and analysts do not see an end to the current growth in the German economy anytime soon.The EUR/USD has had a good week, climbing to highs around 1.1170 on the US political turmoil however price action was choppy last night with the pair breaking back below 1.1100 and nearing 1.1080, on market talk, that there was no obstruction to justice in the Flynn case, therefore clearing US President Trump from a possible impeachment. There is apparently a video from May 3rd, in where former FBI director Comey said under oath and before the Senate Judiciary Committee, that “he has not been pressured to close an investigation for political purposes.” The coming week should see less volatility on this cross given President Trump is “on tour” but further political ructions are likely and this should favour the EUR allied with continuation of positive Eurozone data…..1.1260 long term resistance is now in play over the coming weeks.
The Japanese yen has traded significantly higher against the US Dollar throughout the week as the carnage in Washington occupies the headlines. The Trump government remains on the back foot with the “Russian probe” fiasco expecting to last a while- perhaps months. JPY started the week at 113.20 but was soon falling like a stone through key support levels of 113.00 and 112.00 as risk appetite took hold, the pair reaching 110.50 during early morning trading. Japan’s economy continues to thrive with figures showing growth for the first quarter at 2.2%, the country has expanded for the 5th straight quarter, its longest run in over a decade.