The GBP/USD fell to its lowest level in 2015 to trade at 1.4747 losing 135 points on Friday alone. UK GDP growth looks well positioned to reaccelerate over the course of 2015 after decelerating in late 2014. Consumer spending will remain the main engine of growth as household real income gets a boost from lower inflation, coupled with solid job creation and rising wage inflation. Business investment should also be solid, though held back to some extent by cutbacks in oil and gas investment. Furthermore, UK export growth should benefit from the firming economic growth prospects in Europe, which should translate into stronger demand for UK products and services. In this context, it is not unreasonable to expect UK GDP growth to approach 3% y/y in 2015.
The UK’s goods trade deficit narrowed in January to £8.4B, the lowest level in over twelve months. The unexpected drop was due to lower imports of oil related products. The total deficit stood at £616m in January. Sterling edged higher after the release but was unable to hold gains as heavy selling pressure took hold later in the session. Governor Mark Carney said that the Bank of England may raise rate rises later than expected. The rising value of the UK pound is lowering import prices and putting downward pressure on inflation. Although he said the chances of a deflationary spiral in the UK are low.
The stock market was hit hard on Friday, capping a third week of declines as investors reacted to a steep drop in oil prices and a jump in the value of the dollar.
The sell-off came at the end of a volatile week, and it sets the stage for a Federal Reserve policy meeting next week. Investors will be watching closely for clues about the central bank’s views on the economy and interest rates.
The United States dollar continued its advance against other major currencies. The euro declined 1.3 percent to $1.0486. The United States dollar index, which measures the dollar against a group of other currencies, increased 0.8 percent on Friday and is up 6.4 percent over the last month.
The dollar’s advance can be tied to two factors, strategists say. The United States economy is improving, and the Federal Reserve is poised to raise interest rates sooner rather than later points at the end of the week to continue its down trend to end at 0.7635 as a strong jobs report was not even enough to support the Aussie against the strength of the US dollar. The Reserve Bank of Australia (RBA) may still slash interest rates again despite evidence of falling unemployment in February, according to analysts.
The Australian Bureau of Statistics has revealed that 15,600 more people had jobs in February as compared to January. As a result, the seasonally adjusted official unemployment rate moved lower by one tenth of a percentage point to reach 6.3% while the participation rate dropped from 64.7% to 64.6%. The numbers exceeded economists’ expectations but market sentiment remained downbeat as analysts arguing that Australian unemployment has yet to peak.The PBOC said on Saturday that in addition to the 5.35% one-year loan rate, the bank would be lowering the one-year deposit rate by 25 bps to 2.5%. The central bank of the second-largest economy in the world said that deflationary pressures had led to the cut in interest rates in the country. A PBOC official said in an interview with Wall Street Journal: “Deflationary risk and the property market slowdown are two main reasons for the rate cut this time.”
The PBOC said on Saturday that the falling commodity prices, accompanied with a cut in interest rates, provided room for economic growth in the country. Howie Lee, Investment Analyst at Phillip Futures, said: “The prospects of better growth and stronger income should boost gold-buying in China.”
The data from the US was not especially good, but given the high expectations priced into the US dollar, traders are nervous ahead of any important economic releases. The dollar saw a minor relief rally as the jobs report and retail sales figures came in. Retail sales declined month on month in February by 0.6%. Analysts had forecast a slight rise of 0.3%. The report was troubling because this is the third month in a row that sales have slumped. Auto sales were down by 2.5%, and without this component, sales dropped just 0.1% on the month. Especially bad weather in the US could be to blame for some of this decline. Analysts had expected the improving labor market and falling prices to push through to improving sales on the high street.
FXEMPIRE
FXEMPIRE
NZDUSD
Any rebounds in the kiwi dollar will likely be capped moving forward as
this week we get an interest rate and policy update from the Reserve Bank of
New Zealand (RBNZ).
“No change is expected in the official cash rate and we expect the same
old talk about the NZD being overvalued and its level as being unjustified and
unsustainable,” says a note from Tuatara Asset Management.
In the past we have seen just how heavily this talk from Governor Wheeler can weigh on the NZD.
Tuatara point out that the RBNZ is likely to ignore the fact that the
NZD has dropped sharply vs the USD, down nearly 20 percent from its peak above
0.8800 in July last year.
RBNZ to Signal
Interest Hikes Delays
Barclays have told clients at the head of the new week that NZD’s upside
to be limited by RBNZ’s dovish tilt
“We expect any up moves in NZD to be limited given an expected dovish
bias of the RBNZ in the upcoming policy meeting,” says a note to clients from
the London-based bank.
The RBNZ adopted a neutral stance for policy in January, arguing that
“future interest rate adjustments, either up or down, will depend on the
emerging flow of economic data”.
Barclays expect the RBNZ to use similar language on Thursday as it keeps
the cash rate steady at 3.5%.
That said analysts expect a dovish tilt in the policy statement,
reflecting downward revisions to the inflation outlook with the forecast of
interest rate hikes potentially pushed further back into late 2016.
Although the growth outlook is likely little changed, the RBNZ is likely
to incorporate sharply lower oil prices into its forecast profile.
“The RBNZ is likely to note the rebound in the housing market, but we
think it will place more emphasis on the negative effect of the strong NZD on
the economy,” say Barclays.
“Looking at the NZ dollar it looks like the move back towards the 0.7600
area has failed for now and another period of weakness vs the US dollar lies
ahead. This will be favorable to exporters wanting to convert this seasons
foreign currency receipts,” say Tuatara.
The price action in GBPCAD described
here is consistent with Lien’s view that declines in sterling offer good entry
points for longer-term trades.
2015 should be a year
within which the pound outperforms as the Bank of England leans on raising
interest rates.
The CAD should ultimately
fall back to longer-term trend levels against GBP as a result.
Indeed, we hear from a host
of institutional sources that coming months will not likely favour the CAD.
Essentially, the Bank of
Canada has not done enough to stimulate the economy.
In January the currency
slumped in response to a surprise cut to 3/4’s of a percent in the overnight rate.
However, “we see
significant unpriced risks of additional, much needed, stimulus from the BoC,”
warns Aroop Chatterjee in a note to clients.
Technically, 179.00 offers a strong support line although below here, we are open to a full figure lower before any reasonable demand would defend prospects for 174.80 medium term, playing through the levels on handles between there and here. 179.22 20 EMA marks support ahead of 175.77 and the 220 EMA before 174.91 (50 EMA). To the upside, fundamentals would need to play their pair and a change there of.
The Yen
Govt
survey suggests weak yen starting to harm confidence
*
Confidence hurt by rising import costs, labour shortage -MOF
* Capex
seen to rise 5.1 pct in FY2014/15; fall 3.9 pct in FY2015/16
TOKYO,
March 12 (Reuters) - Confidence at big Japanese manufacturers worsened in
January-March and is seen turning negative in the second quarter as a slumping
yen ramped up the costs of raw material imports, a survey showed, complicating
Tokyo's stimulus-driven campaign to revive the economy.
The
quarterly poll by the Ministry of Finance and the Cabinet Office released on
Thursday suggests the drawbacks of a weak yen may be outweighing its benefits,
which have not spread to broader sectors of the economy.
The
loss of confidence comes as the Bank of Japan remains committed to its massive
monetary easing programme even as the U.S. Federal Reserve moves closer to
raising interest rates, triggering a renewed slide in the yen.
The yen
skidded to 8-year lows against the dollar to above 122 yen on Tuesday on
expectations the Fed may raise rates as early as in June, heightening worries
that an unrelenting drop in the Japanese currency could prove more harmful in
the long run.
The
business survey index (BSI) of sentiment at large manufacturers stood at plus
2.4 in January-March, compared with plus 8.1 in the prior three months.
The
sentiment index is seen deteriorating further to minus 0.9 in the second
quarter.
"Our
view remains unchanged that the economy is in a moderate recovery trend,"
said a finance ministry official.
"We
hear from companies that they are facing rising raw materials costs on higher
import prices, a labour shortage and increase in electricity bills."
The
survey also showed Japanese firms are expected to raise capital spending in the
current fiscal year to March, but they are seen cutting expenditures in the
next fiscal year, adding to concerns about soft business investment.
Capital
spending and wages are essential for the success of Japan's reflationary
policies known as "Abenomics", but companies have been so far slow to
implement their business investment plans due to uncertainty over the growth
outlook.
Confidence
at all firms including service-sector stood at plus 1.9 in January-March,
compared with plus 5.0 in the prior quarter. It is seen sliding further to plus
1.0 in April-June.
The
latest survey follows a recent batch of soft indicators for capital spending,
raising doubt about strength of business activity.
However,
the finance ministry official told reporters that companies tend to show
moderate capital spending plans for the next fiscal year at this time of year,
and to revise up their investments when they firm up plans as the year
progresses.
(Editing
by Shri Navaratnam)
