- USD slid lower against most majors, with recent negative economic data
- Commodities dropped with disappointing data from China
- GBP near two-month highs following a boost in home prices
USD – Last week the dollar was down against most major currencies with the DXY off 0.7% from its Monday high, now at 82.224. The slide in USD followed a string of negative economic news, most recently the retail sales figures for March, falling 0.4%. The string of disappointing data will most likely mean that the Fed’s prospect of easing off of QE later in the year may be put on hold. The U.S. Empire State April data dropped to 3.05 to extend the March down-tick to 9.24 from the 10.04 nine-month high in February. The measure remains above the -7.78 recent low in January. The markets will be looking closely at some early indicators of the strength of the US economy in April including industrial output and US house building activity. Industrial output is forecast to follow up on March gains with further pickup, and US building activity is expected to show continuing signs of recovery. Given the Fed’s interest in the labor market, jobless numbers will continue to be of interest, though the timing of Easter may impact data from the recent weeks.
EUR – This week Eurozone data is thin on the ground. The ZEW survey data for the Eurozone and Germany are set to be released tomorrow. The German ZEW for April is expected to drop back significantly, reversing some of the improving trend of recent months, and underlining the fact that the problems in the Eurozone economy are spreading to the core. Also tomorrow, we get CPI and CPI core for the Eurozone. The initial CPI estimate decreased from 1.8% to 1.7% y/y, as energy prices increased at a significantly slower pace in March. Energy prices increased by 1.7% in March compared with 3.9% in January and February. Today the Eurozone trade balance came in at 12B against a forecast of 10B. Overall EUR is weak, down 0.4%, failing to break above the 100‐day moving average at 1.3150, dragged down by broader market developments, in particular the gold market
GBP – The pound is trading near its two-month high after an industry report showed U.K. home sellers raised asking prices in April for the fourth consecutive month, boosting optimism that the country can avoid another recession. The key report this week will be tomorrow’s inflation release, which is expected to come in at 2.8. Also this week, the Bank of England will release the minutes from their April 3-4 meeting, when rates were left unchanged and did not add to their Gilt purchase program.
JPY – The Japanese yen rose against its most traded counterparts after China’s growth slowed more in the first quarter than economists’ forecasts, fueling demand for safe haven assets. The collapse in gold has driven market weakness and JPY buying as well. Last week, JPY weakened almost to 100 against USD for the first time in four years, after the BoJ pledged at its April 4th policy meeting to double the monetary base by the end of 2014 through buying government bonds, known as quantitative easing. Governor Kuroda continues to imply that for now the BoJ has done enough easing, while highlighting today that Japan’s economy had bottomed, and there were early indications pointing to rising inflationary pressures. The U. S Treasury said April 12th it would pressure Japan to avoid “targeting its exchange rate for competitive purposes” in its semi-annual currency report to Congress released in Washington. Fundamental data today was mixed, with industrial production rising but machine tool orders falling. The upcoming economic indicators in the U.S may weaken the dollar and not support yen selling, however, the yen may still continue to depreciate. We expect JPY to trade above 100 this quarter.
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Commodity Currencies – The commodity currencies weakened against the USD after disappointing economic data from China. The AUD fell to a one-week low against the USD on weak economic data out of China. The AUD dropped below its 200-day moving average at 1.0397. While there are no economic data due this week, market participants foresee the AUD to continue to weaken against the USD. The CAD weakened against the USD, after commodity prices were hit by disappointing data out of China. Gold, silver, copper and oil prices continued to decline shares in Canadian mining companies fell in early trading on Monday, as the price of gold continued its recent decline. Market participants are awaiting the release of the Canadian manufacturing sales data due tomorrow, as well as the BoC rate decision and CPI inflation data due on Wednesday and Friday, respectively. Expect the CAD to trade between the 1.0170 and 1.0240 level, until the release of domestic data.
Renminbi – The Chinese RMB strengthened against the USD, surpassing last Friday’s all-time high, even though economic growth data was weaker than expected. The Chinese central bank set the official midpoint CNY at 6.2454 per USD this morning, its highest level since the domestic forex market opened in 1994. Markets saw the RMB’s aggressive performance in recent days as a diplomatic gesture to coincide with US Secretary of State John Kerry’s recent visit to China. The RMB has in the past strengthened during key diplomatic events with the US. However, data also shows that Chinese corporates’ appetite for the RMB continues to remain strong, which has caused the PBOC to move to hold back the RMB by buying up massive amounts of dollars. The offshore spot RMB is currently trading in the 6.1855 level.