The Forex Week In Review
Following on from the recent central-bank driven volatility we have seen, this week was more of the same as another volatile week comes to an end in Forex markets. The early part of the week was dominated by the first RBA rate-cut of 2016 Market expectations were roughly split as to whether the RBA would enact further easing at this stage or wait it out but the bank chose to cut rates a further .25% to a record low of 1.75% citing continued low inflation and risks from the slow-down in China. AUD weakness was then extended as the RBA then followed the rate cut by further reducing its 2016 inflation forecast which now sees inflation at 1-2% year end versus 2-3% initially.
Moving into the end of the week and focus was fixed firmly on the US employment reports with USD bulls hoping for a strong figure to encourage support for a June hike. However, at just 160k the April Non-Farm Payrolls printed well beneath the industry expected 205k which saw USD spike lower initially. However with the Unemployment rate remaining steady at 5% and average weekly earnings increasing 2.5% YoY the net outcome saw USD bid.
USD – The US Dollar staged a recovery last week driven mainly by risk off flows amidst a retreat in risk-appetite fuelled by weak China data and renewed concerns for global oversupply in the Oil market. USD remained bid throughout the week despite mixed data flow; ISM Manufacturing printed below expectations whilst the Non-Manufacturing index printed above expectations. On Friday the employment reports for April showed Non-Farm Payrolls were well below estimate whilst the Unemployment rate remained unchanged and average weekly earnings increased 2.5% YoY.
EUR ECB’s latest economic bulletin reiterated concerns of low inflationary pressure, expected to remain negative in the coming months before picking up during the second half of the year on base effects. ECB has started to expand monthly asset purchases to € 80 billion and “intended to run until the end of March 2017 or beyond if necessary”, hinting that additional stimulus is still on the table. In June, ECB will conduct its first operation of targeted longer term refinancing operations (TLTRO II).
GBP Sterling action was weighed upon this week by a fresh round of domestic data weakness and a deterioration in the Brexit outlook. On the data front, a series of worse-than-expected PMI readings highlighted the UK’s economic weakness with both Manufacturing & Services falling to three year lows. These moves were compounded by reports that the most recent Brexit polls show a return to strength for the VoteLeave campaign which once again have a slight majority.
JPY The Japanese Yen remained bid this week, extending gains from the recent BOJ meeting which saw the central bank surprise markets by refraining from further action. A retreat in risk-appetite over the week added further support for the JPY which is a traditional safe haven currency. Traders remain alert to possible official intervention midst reports midweek of GPIF selling.
AUD The RBA cut rates to a record low of 1.75% at its May meeting citing continued low inflation and a deteriorating inflation outlook alongside a continued slow-down in growth for Australia’s main trading partner China. The central bank have also revised lower their 2016 inflation forecast which now sees inflation hitting just 1-2% year end versus 2-3% originally. Whilst the bank were keen to stress their concern for the inflation environment they remain optimistic about domestic economic growth and actually raised their 2016 GDP forecast by half a percent.
CAD The Canadian Dollar was weighed upon this week by heavy selling in Oil and weak domestic data. Rising output in the Middle East and North Sea has spark renewed concern for global oversupply in Oil markets taking Crude $3 lower on the week. Canada’s trade deficit in March unexpectedly widened to a record C$3.41 billion ($2.66 billion) as exports dropped for a second month on widespread weakness. Canadian Unemployment rate on Friday edged slightly lower in April from 7.2% to 7.1%.