USD: Dollar on patchy upward swing
US data was mixed last week: Services PMI and ISM Non-Manufacturing data both beat expectations, while ADP Employment Change numbers raised concerns and Friday’s Nonfarm Payroll numbers came in below expectations. However, the unemployment rate remained at 5% and on a positive note, hourly wages were in line with expectations, enough to offset disappointing results from the NFP report. Though the USD has seen some patchy and inconsistent movement, some analysts are bullish on the short-term recovery of the dollar. The greenback is holding its ground against most currencies despite a real lack of possibility for a June rate hike, with the biggest gains coming against commodity currencies.
Looking ahead, Unemployment Claims are expected on Thursday, but the next big test for the US economy will be the release of retail sales data this Friday.
EUR: A lackluster week
Things continued to look lackluster in Europe last week. With economic reports mixed for the Eurozone, its common currency lacked inspired movement. There was little change in the euro after a dull ECB bulletin released last Thursday, followed by an overall poor PMI on Friday. Last week, the European Commission cut its 2016 inflation outlook from 0.5% to 0.2% despite monetary stimulus and a rebound in oil prices; this is far from ECB’s near 2% target.
Looking ahead, a slew of German data is coming out throughout the week, in addition to the Eurozone Industrial Production report on Thursday and the highly-anticipated Q1 GDP reports on Friday.
GBP: Sterling struggling under the Brexit shadow
Uncertainty around Brexit is very much an economic issue in the UK right now. Last week’s manufacturing, construction and services PMI figures missed projections, with companies pinning weakness in output on political uncertainty. Growth in services is the most critical for the GBP. As a result, Markit Chief Economist Chris Williamson has warned that the UK economy is “near-stalling.”
Much anticipation surrounds the Bank of England’s quarterly Inflation Report which is coming out this Thursday, the last one before the referendum. In fact, this week will be a very busy one in terms of data: Tuesday will bring the release of BRC’s latest Sales Like-For-Like data and an update on Britain’s trade deficit. Industrial and Manufacturing Production Reports will be released on Wednesday. An estimate of the GDP will also be released on Wednesday. Thursday’s upcoming BoE policy meeting, while unlikely to change rates from the current 0.50%, may rouse investor movement on Brexit sentiment. While we can expect a cautious note for the BoE announcements and press conference on Thursday, many hoping for movements in GBP are looking for a positive tone and affirmations that the pound’s current decline are temporary; a snap of confidence may yield some positive movement for the sterling.
CAD and AUD: Oil has its impact
The Canadian dollar benefited from a rally in oil over the last week, driven by news that US production fell last week to its lowest level in over a year, and as oil production in Canada ground to a halt due to the wildfires raging through its oil-rich province. However, Canadian economic fundamentals came in weaker, with a higher trade deficit and low employment. One of Canada’s biggest banks is cautioning that Canada’s surprisingly strong run of economic data could have come to an end, and Bank of Canada now forecasts GDP growth at 2.9% from an earlier 3.3%.
The Reserve Bank of Australia’s surprise rate cut last week resulted in the biggest single-day decline for the AUD since November 2011, causing the Aussie dollar to break its upward trajectory and opening the door to further decline. The recent strength of the Japanese yen and the euro, and the correction in commodity prices, is also expected to put pressure on the Australian dollar, with the RBA pointing to the possibility of further cuts. A string positive economic data, covering retail sales, new home sales and trade balance figures, helped the AUD end the previous week on a high note.
Looking ahead, Aussie consumer confidence figures are being released tomorrow, and consumer inflation expectation on Wednesday. For Canada, the New Housing Price Index will be released on Thursday.