Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“Solid as a rock. The German labour market continues its success story, providing further evidence of strengthening domestic demand”

-Carsten Brzeski, economist at ING

German consumer mood brightened amid increasing optimism about the economic growth and low oil prices, which freed up cash for Germans to spend. Confidence among German consumers hit the highest level since late 2001, according to the market research group GfK. Its forward-looking Consumer Sentiment Index rose from 9.3 points in February to 9.7 points in March. GfK admitted that geopolitical problems such as the Ukraine conflict and financial problems in Greece appeared to have a limited impact on German consumers. That is not a surprise given the nation’s economy continue to strengthen with the unemployment rate falling to the lowest level in more than two decades in February. The Labour Office reported that the number of jobless people declined by a seasonally adjusted 20,000 to 2.812 million, the level last seen in December 1991. The jobless rate was at a record low of 6.5% for a third consecutive month in February and remains the lowest since German reunification in 1990.

Meanwhile, Spain managed to maintain its expansion rate in the fourth quarter, with the final data confirming the Euro zone’s fourth biggest economy grew 0.7% on quarter in the three months through December. It was the sixth straight quarter of continuous growth in Spain. On an annual basis, Spain’s GDP rose 2.0% following the 1.6% expansion in the third quarter.

USD

“The core being a little hotter than expected I think will bolster confidence a little bit, that inflation is going to go back toward target”

-James Bullard, St. Louis Fed President

Welcome to the club! The annual inflation rate in the world’s number one economy turned negative in January for the first time since 2009. The Labor Department reported that consumer price index dropped 0.1% in the reported month from a year earlier. However, core inflation, which strips out energy and food costs, stayed positive at 1.6% on an annual basis, but below the Fed’s 2% goal. Deflation was not the only negative piece of news, as the number of Americans who applied for unemployment benefits in the week ending February 20, rose more than expected, pushing the reading back above 300,000. The Labor Department said weekly applications jumped 31,000 to a seasonally adjusted 313,000, the highest in six weeks. The four-week average, a less volatile measure, increased 11,500 to 294,500. Meanwhile, continuing claims for the week ending February 7 came in at 2.401 million, compared to the preceding week's revised reading of 2.422 million.

US durable goods were the only positive data among the plethora of Thursday’s fundamentals. Demand for big-ticket manufactured goods rebounded in January, for the first time in three years. Bookings for goods meant to last at least three years advanced 2.8% following a revised 3.7% drop in the preceding month, the Commerce Department reported. Excluding the volatile transportation sector, orders ticked up 0.3%.

GBP

“With oil prices expected to stay very low and earnings growth now trending up, the economic fundaments currently look broadly positive for the United Kingdom in 2015 – especially for consumers.”

-Howard Archer, an economist at IHS Global Insight

The British economy grew in the fourth quarter of 2014 in line with expectations, according to the second estimate released by the Office for National Statistics. The UK GDP fell to 0.5% in the reported period, down from 0.7% in the previous three-month period. The second estimate is based on 50%-60% of available data from the expenditure and income side. The final reading is due in late March. The biggest upward catalyst on the output side of GDP was the services sector, increasing 0.8% between the third and fourth quarters. The largest drag on growth came from a weaker construction sector, which plummeted 2.1% between the two quarters. In 2014 as a whole, the UK economic output surged 2.6% from the previous year. The full-year growth reading was also left unrevised.

A separate report showed investment by businesses dropped at the sharpest pace in almost six years in the December quarter, hurt by lower investment in the petroleum sector as global oil prices continued to decline. Business investment fell 1.4% following the 1.2% drop in the third quarter, marking the second quarterly fall in a row. Measured on an annual basis, growth stood at 2.1%, the slowest since early 2010. Economists believed business investment in the UK might also be hit by uncertainty over the outcome of Britain's national elections in May.

AUD

“Our expectation is the RBA will cut the rates next week and this [the capex data] firms our belief. My expectation is it [the Australian dollar] will fall further. The domestic economy story isn't that good and rate differentials people are earning are rapidly diminishing.”

-Daniel Been, ANZ Banking

New private capital expenditure in Australia fell more than analysts predicted in the December quarter, weighed down by reduced spending on buildings and structures, raising likelihood for another rate cut from the Reserve Bank of Australia. Private capital expenditure dropped a seasonally-adjusted 2.2% in the final quarter after increasing a revised 0.6% previously, the Australian Bureau of Statistics reported, coming in weaker than the market expectation for a 1.7% slide in investment. Measured on an annual basis, private investment declined 3.6%. Moreover, it is estimated that investment spending would fall by 12.5% to A$109.7 billion in 2015-2016. Meanwhile, capital spending by companies declined 2.2% in the December quarter, against economists’ expectations for a 1.6% fall.

The weaker than expected data on capital expenditure followed data this week, which showed annual wage growth has declined to the lowest level in 17 years of 2.5%. Business investment remains sluggish, while consumer and business confidence falls amid below-trend growth of the Australian economy. The data adds to the likelihood of another interest rate cut at the next week’s RBA meeting. In February, the central bank slashed the benchmark interest rate down to 2.25% from 2.5%, and it is expected to bring the OCR to 2.0%.

CAD

“Aside from gasoline, there were few signs of weakness in Canadian price trends last month. In fact, the lower loonie’s wingprints were all over this report”

-Douglas Porter, Bank of Montreal chief economist

Inflation rate in Canada fell to the lowest level in more than a year in January, as plunging oil prices continue to impact consumer prices. According to Statistics Canada, January inflation slid to 1% from a year earlier, the level last time seen in November 2013, following the 1.5% reading in the prior month. Measured on a monthly basis, CPI dropped 0.2% from December. The sharp decline was led by a precipitous fall in gasoline prices, which plummeted 12.4% on month, and 26.9% on year. Nevertheless, the core inflation rate, which irons out eight volatile components of total CPI including gasoline and other fuels, remained unchanged at 2.2%, reinforcing the view that the energy price slump still does not impact the country’s broader inflation picture.

After reaching a peak at 2.4% in October, Canada’s inflation rate has been falling rapidly, driven by the sharp plunge in the price of crude. However, the core inflation rate, which is considered a better gauge of broader inflationary pressures, has remained relatively steady at slightly over the Bank of Canada’s inflation goal of 2%. Economists suggested that the depreciation of the Canadian Dollar in the wake of dramatic oil’s decline might be feeding broader inflation and cushioning the impact of slumping fuel prices, by increasing the cost of imported goods.