The currency markets were very volatile this week with the US Dollar paving the way for a correction. The weakness in the Greenback saw most of its peers rally across the board after what seems like ages after a bearish trend. It is still unclear at this point if there is a significant shift in the markets or if this current volatility is merely a blip to shake out some of the weaker positions.
Australian Dollar – A rollercoaster ride
The Aussie dollar hit new highs this week as the currency edged higher against the Greenback, touching the highs above 0.805, a level that would have seemed unachievable just a week ago. The rally in the Aussie as with most of the currencies was on a subdued Greenback as the rally was quite swift with little to no retracements. The Aussie however failed to hold to its gains as market sentiment shifted back to a bearish view ahead of the RBA’s monetary policy meeting next week with speculation rising for another rate cut. There was not much of economic data this week for the most part.
- CB leading index m/m 0.5% vs. 0.4% previously
- Import prices q/q -0.2% vs. 1.1%
- Private sector credit m/m 0.5% vs. 0.5%
- AIG manufacturing index 48 vs. 46.3 previously
- PPI q/q 0.5% vs. 0.2%
- Commodity prices y/y -20.5% vs. -19.2%
Yen – No strong direction
The Japanese Yen, after enjoying a strong rally earlier last quarter was practically aimless as the currency traded mixed. The currency was stronger against the Greenback and the Kiwi dollar, but weaker against the British Pound, the Aussie and the Euro. The Bank of Japan met on April 30th and left its policy unchanged and did not expand its QQE program. While the central bank expects to see inflation near zero, it remained optimistic that the pressures on inflation were only temporary.
Economic data from Japan this week was overall positive.
- Retail sales y/y -9.7% vs. -7.4%
- Preliminary industrial production m/m -0.3% vs. -3.4%
- BoJ monetary policy unchanged
- Housing starts y/y 0.7% vs. -1.8%
- Household spending y/y -10.6% vs. -11.7%
- Tokyo Core CPI y/y 0.4% vs. 0.5%; national core CPI y/y 2.2% vs. 2%
- Unemployment rate 3.4% vs. 3.5%
- Average cash earnings y/y 0.1% vs. 0.4%
Kiwi falls on rate cut talk
The RBNZ met for its monthly monetary policy this week at a time when most of the major markets were closed. The RBNZ maintained no change to interest rates while noting that it could cut rates should inflation fail to pick up. Most recent quarterly inflation fell below estimates. The RBNZ also stuck to its narrative of talking down the Kiwi’s exchange rate. After the release the New Zealand dollar was seen trading weaker across the board, but the pair was seen trading mixed against the US Dollar.
- RBNZ leaves interest rates unchanged
- Trade balance 631mn vs. 315mn
- ANZ business confidence 30.2 vs. 35.8 previously
- Building consents m/m 11% vs. -6.5%
Euro posts a strong reversal
The Euro, single currency perhaps took many by surprise this week as the currency simply gained enough bullish momentum to post a quick and sharp rally across the board. The Euro was trading above 1.125 at the time of writing, against the Greenback. The currency strengthened across the board, with the Euro crosses posting strong gains overall, practically erasing most of its losses since the past two weeks. Greece continues to be the topic of debate, but news reports suggest that after the reshuffle of the negotiating team, Greece was more optimistic of its latest debt negotiations to the fact that it was willing to compromise on its previously strong stance. With the threat of a Grexit now slowly subsiding, the Euro posted gains. Economic data this week from Eurozone was largely mixed but remained overall optimistic.
- German import prices m/m 1% vs. 0.5%
- German preliminary CPI m/m -0.1% vs. -0.1%
- M3 money supply y/y 4.6% vs. 4.3%; private loans y/y 0.1% vs. 0.1%
- German retail sales m/m -2.3% vs. 0.5%
- France consumer spending m/m -0.6% vs. -0.5%
- Spain flash CPI y/y -0.6% vs. -0.7%; flash GDP q/q 0.9% vs. 0.8%
- Eurozone CPI flash estimates y/y 0% vs. 0%; Core CPI y/y 0.6% vs. 0.6%
- Eurozone unemployment rate 11.3% vs. 11.2%
British Pound posts second week of gains
The British Pound continued its second weekly gains across the board, further fuelled by the Greenback’s weakness. GBPUSD posted fresh monthly and yearly highs this week, while the currency managed to hold ground against the commodity risk currencies. However, the British Pound was no match to the Euro’s strength as EURGBP broke above 0.73 level.
Economic data from Britain for the most part was mixed with the initial GDP estimates falling below the previous quarter. However, the Pound clearly ignored the weak data and continued to post gains. The currency now heads into a crucial elections period next week.
- CBI industrial order expectations 1 vs. 4
- Preliminary GDP q/q 0.3% vs. 0.5%
- BBA mortgage approvals 38.8k vs. 37.9k
- Index of services 3m/3m 0.7% vs. 0.7%
- Nationwide HPI m/m 1% vs. 0.2%
- CBI realized sales 12 vs. 26
- Manufacturing PMI 51.9 vs. 54.6
- M4 money supply m/m 0.3% vs. 0.1%
US Dollar – Correction or a retracement?
Market sentiment this week was heavily inclined towards a bearish view on the Greenback. Indeed, looking at the economic data this week, market participants sold off the US Dollar on every economic news that failed to beat estimates. For the data that did not manage to come above estimates however saw a muted reaction. The FOMC this week was the major risk event, but the Fed did not change its rhetoric much, leaving it to the markets to figure out the Fed’s next move. While the Greenback managed to pause its declines, renewed selling starting hitting the markets again later in the week, after the FOMC event.
With economic data for Q1 now done with, the markets will be scrutinizing every piece of major economic data from now onwards to ascertain if the data the past quarter was indeed transitory or perhaps hints to a larger underlying weakness in the US economy.
- Flash services PMI 57.8 vs. 59.1
- S&P/CS composite HPI y/y 5% vs. 4.7%
- Richmond manufacturing Index -3 vs. -2
- CB Consumer confidence 95.2 vs. 102.6
- Advance GDP q/q 0.2% vs. 1%
- Advance GDP price index q/q -0.1% vs. 0.4%
- pending home sales m/m 1.1% vs. 1.1%
- FOMC statement offers not much of clues
- Unemployment claims 262k vs. 290k
- Core PCE price index m/m 0.1% vs. 0.2%
- Personal spending mm/ 0.4% vs. 0.6%
- Employment cost index q/q 0.7% vs. 0.6%
- Chicago PMI 52.3 vs. 50.1
