Forex Major Currencies Outlook (Aug 12 – Aug 16)

USD

ISM non-manufacturing for the month of July came in at 53.7 vs 55.5 as expected, down from 55.1 the previous month. New orders and new export orders came in weaker than expected while employment category improved. Biggest drop was in business activity which fell to 53.1 vs 58.2 the previous month.

This week we will have inflation, consumption and housing data.

Important news for USD:

Tuesday:

• CPI

Thursday:

• Retail Sales 

Friday:

• Housing Starts
• Building Permits

EUR

Final services and composite PMIs for the month of July came in at 53.2 and 51.5 as preliminary reading showed. However, they were both down from the previous month’s readings of 53.6 for the services and 52.2 for the composite. Particularly worrying is the downward revision to the German reading which can indicate that effects of slowdown in manufacturing sector are spilling over across the economy. Markit even noted that, although it is still early, we could be up for another weak GDP performance over Q3. Sentix investor confidence came in at -13.7 vs -7 as expected for the worst reading since October of 2014. The prior reading was -5.8 and incoming data points to increased investors concerns regarding slowdown in Q3. 

German factory orders in June bounced back and beat the expectations coming in at 2.5% m/m vs 0.5% m/m as expected and up from -2% m/m the previous month. Much needed positive data from Germany showing strongest reading in 2 years. German government would issue new debt in order to fight climate change. Reuters cited senior German government source as saying that no new debt is no longer tenable in light of climate changes. A change in fiscal stance from EU’s largest economy is a very positive thing for common currency and EUR gained strength on the news. 

Political issues are brewing in Italy with Salvini, right-wing and interior minister, being keen on dissolving coalition with left-wing 5-Star Movement. The leaders have clashed on the broad range of topics and it could lead to the collapse of the government. October 13 has been suggested by the Italian media as the election date. 
This week we will have data on economic sentiment, employment change, industrial production, trade balance, second estimate of Q2 GDP for Euro area and preliminary German Q2 GDP.

Important news for EUR:

Tuesday:

• ZEW Economic Sentiment Indicator (EU and Germany)

Wednesday:

• Employment Change
• Industrial Production
• GDP (EU and Germany)

Friday:

• Trade Balance

GBP

Services PMI for the month of July came in at 51.4 vs 50.3 as expected and up from 50.2 the previous month. Very positive beat that dragged services away from 50 level and brought composite PMI back to the expansion territory at 50.7 from 49.7 the previous month. 

Preliminary Q2 GDP came in at -0.2% q/q vs 0% q/q as expected and down from 0.5% q/q in Q1 and 1.2% y/y vs 1.4% y/y as expected and down from 1.8% y/y previously. Total business investment came in at -0.5% q/q down from 0.4% q/q previously. Brexit uncertainties keep business investments on the side and it is showing how much it impacts UK’s economy. Private consumption came in at 0.5% q/q, better than expected but down from 0.6% q/q previously. This is the first time UK economy had a quarterly contraction since 2012. Manufacturing and industrial production continued their decline and came in at -1.4% y/y vs 0% y/y previously and -0.6% y/y vs 0.9% y/y previously. Manufacturing sector was supposed to profit from weaker GBP. Construction output also fell into negative coming in at -0.2% y/y vs 1.7% y/y previously. Cable has dropped below 1.21 after the news making new year-lows. The sole positive reading was visible trade balance which came in at -£7bn vs -£11.8bn as expected. Exports rose 7.6% m/m while imports fell -3.6% m/m. 

This week we will have employment, inflation and consumption data.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate
• Average Weekly Earnings

Wednesday:

• CPI

Thursday:

• Retail Sales 

AUD

Trade balance in June came in at AUD8036m vs AUD6000m as expected. Imports were down -4% m/m indicating slow domestic demand but exports were up 1% m/m showing still strong iron ore trade with China. Exports are up 15.5% y/y. 
RBA has left cash rate unchanged at 1% as expected. They will keep the rates low for an extended period of time and will react to adjust monetary policy if need arises to sustain economic growth. Developments in the labour market will be closely monitored and they expect Australian economy to grow at 2.5% in 2019. They acknowledged that “it is likely to take longer than earlier expected for inflation to return to 2 per cent”. 

Caixin services PMI came in lower at 51.6 vs 52 as expected and previous month while composite rose to 50.9 from 50.6 the previous month on the back of stronger manufacturing reading. As part of retaliation against newly imposed tariffs China has let its currency fall below previously set level of 7. The move lower for yuan was market driven. Additionally, reports suggest that China has asked state-owned buyers and private buyers to cease the purchases of US soy beans due to trade concerns. US have labelled China as “currency manipulator” for the first time in 25 years. Weaker currency helps exporters, however in case of big fall in currency capital outflows are possible, therefore China has re-evaluated its currency higher with comments from PBOC that China doesn't manipulate its currency. Trade balance for the month of July came in at $45.06bn vs $42.65bn as expected. Exports were up 3.3% y/y while imports were down -5.6% y/y vs -9% y/y as expected. These numbers are in USD terms while trade with US is expressed in Yuan terms and it shows that exports are down -2.1% y/y while imports are down staggering -24% y/y. Trade balance with US is 11.1% y/y. CPI in July came in at 2.8% y/y vs 2.7% as expected while PPI came in at -0.3% y/y vs -0.1% y/y as expected. Inflation is safe in the PBOC range, however drop in PPI will negatively affect business profits. 

This week we will have data on consumer confidence, wages and employment from Australia as well as consumption, investment and industrial production data from China.

Important news for AUD:

Wednesday:

• Westpac Consumer Confidence
• Wage Price Index
• Retail Sales (China)
• Industrial Production (China)
• Fixed Asset Investment (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

The employment report for Q2 smashed the expectations with employment change coming in at 0.8% q/q vs 0.3% q/q as expected and up from -0.2% q/q the previous month. The unemployment rate plunged from 4.2% to 3.9%! It was expected for it to tick up to 4.3%. Participation rate stayed the same at 70.4% but average hourly earnings and private wages both beat the expectations thus completing a very strong report. NZD has jumped higher after the report across the markets but its rise was reduced by 2 year inflation expectation which came in below previous 2.01% at 1.86%. 

RBNZ surprised the markets with their rate cut of 50bps which puts official cash rate at 1%. Markets were expecting a 25bps cut and reaction was fierce plunging NZD. RBNZ has said that rate cut represents a commitment to reaching the inflation target and employment objectives. Lower rates and higher government spending will support demand. Global economic outlook has weakened which lead to reduced investments which in turn highlighted the risk of more prolonged slowdown in global economic growth. Governor Orr stated that this rate cut does not rule out further action. He added that this cut reduces the risk of having to use negative rates, however there is a possibility that rates will have to go into negative territory. Although questions about effectiveness of low rates are raised across the Globe governor Orr states that low interest rates are just as effective as ever. Ultra dovish remarks by the governor and NZD will stay low for a long time as other banks call for more cuts to come at November meeting.

This week we will have data on consumption via electronic cards and business PMI data, both will be for the month of July.

Important news for NZD:

Monday:

• Electronic Card Retail Sales

Friday:

• BusinessNZ PMI

CAD

Canadian employment change came in at -24.2k vs 15k as expected and down from -2.2k the previous month. The unemployment rate went higher to 5.7% from 5.5% the previous month while participation rate ticked down to 65.6%. Both full-time and part-time employment data came in negative. This is another in line of reports from Canada that missed the expectations. Whether it will be attributed to “one month off” or if this is the start of bad employment data is yet to be seen.

JPY

Household spending in June came in at 2.7% y/y vs 1.1% y/y as expected. Both labour and real cash earnings beat the expectations and came in better than previous month at 0.4% y/y vs -0.5% y/y the previous month and -0.5% y/y vs -1% y/y the previous month respectively. Potential for pushing inflation higher is kinda there but this is the sixth straight month of dropping real cash earnings despite beating on estimates. 
Preliminary reading of Q2 GDP came in at 0.4% q/q vs 0.1% q/q as expected and 1.8% y/y vs 0.5% y/y as expected. Data was much stronger than expected and it represents third straight quarter growth. It showed that Japan's economy is in moderate recovery due to strong private consumption and capital expenditure. Private consumption, which accounts for about 60% of Japan's GDP, rose 0.6% q/q while business investment rose 1.5% q/q. Economy is expected to continue moderate recovery due to improvements in jobs and income conditions.

This week we will have data on industrial production.

Important news for JPY:

Thursday:

• Industrial Production

CHF

Retail sales bounced back in June and came in at 0.7% y/y from -1.7% y/y the previous month which was revised up to -1.1% y/y. On a monthly basis it rose 1.5%. The unemployment stayed at 2.1% and 2.3% seasonally adjusted.

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