Daily Forex Fundamental Overview

Daily Forex Fundamental Overview

EUR

“Our monetary policy decisions have worked, and it is with a certain degree of satisfaction that the Governing Council has acknowledged this”

- Mario Draghi, ECB Governor

The European Central Bank will start its quantitative easing programme as soon as next Monday, March 9, Mario Draghi, central bank Governor announced on Thursday. The central bank also decided to leave the benchmark interest rate unchanged at a record low of 0.05%. In addition to that, the central bank revised downwards its inflation outlook for the currency bloc for this year due to persistent decline in oil prices. The ECB now expects consumer inflation to be flat in 2015, a downward revision from a December forecast of 0.7%. As for 2016, the inflation outlook was revised higher to 1.5% against 1.3% estimated previously, reflecting expectations for the oil rout to wind down. Looking ahead, in 2017, the ECB sees inflation at 1.8% - close, but still below the central bank’s goal of near but just below 2%. At the same time, the ECB has become more optimistic on economic growth outlook. The central bank revised its GDP growth projection to 1.5% in 2015 up from 1.0% estimated in December and 1.9% in 2016, compared with 1.5% in the December estimate. Meanwhile, 2017 growth is forecast at 2.1%.

Draghi also said that the ECB injected additional 500 million euros to the Emergency Liquidity Assistance (ELA), bringing the total size of the 'window' to 68.8 billion euros.

USD

“The job numbers will be good, but we’ve been so strong for the last three months, it’s hard for me to think that’s going to be sustained.”

- Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc.

The number of Americans filling new claims for unemployment benefits rose in the week ended February 28, breaking above 300,000 threshold. Initial jobless claims across the US increased to a seasonally adjusted 320,000 in the measured period, the Department of Labor said, following the last week’s figure of 313,000. Meanwhile, continuing claims for the week ending February 14 rose to 2.421 million, compared to last week's upwardly revised reading of 2.404 million. Earlier this week ADP’s report revealed that private sector employment increased by 212,000 jobs in February, following an upwardly revised 250,000 increase booked a month earlier. Today’s report may show employers added 235,000 workers in February, while the unemployment rate is expected to drop to 5.6%, matching a more than six-year low. Solid job gains are encouraging as strengthening labour market indicate that the Fed may decide to increase interest rates sooner than expected. The US labour market coupled with inflation are key determinants when it comes to the debate about the timing of the monetary policy normalization.

A separate report showed US productivity dropped at a 2.2% annual pace in the December quarter compared with 1.8% rate reported in the preceding month.

GBP

“There are costs and risks from keeping interest rates at emergency levels for a sustained period, especially as an economy returns to more normal functioning”

- Kristin Forbes, BoE policy maker

The Bank of England opted to keep the interest rate unchanged in March, marking six years since policy makers reduced borrowing costs to all-time low levels to help the UK economy recover from a deep recession. The Monetary Policy Committee maintained the central bank’s benchmark rate at 0.5% and agreed to leave the size of the bond portfolio unchanged at 375 billion pounds. While the economic recovery brings prospects of rate hikes closer, annual inflation at 0.3% and the likelihood of an outright decline in prices in coming months put little pressure on central bankers to act. Falling oil prices and the effect of late 2013 and early 2014 Pound’s appreciation are the key two downward pressures on consumer prices. Besides, prospect of a very low near-term inflation led the MPC members to unite on rate vote in January after five months of a disagreement at the panel.

Yet the British economy is growing robustly, supported largely by solid consumer spending. Economic output increased 2.6% in 2014 and BoE policy makers expect low inflation to boost household incomes and fuel growth this year. Investors expect the central bank to finally hike interest rates early in 2016. However, some officials have pointed they may favour raising rates even earlier, probably before the year end.

CAD

“The bank continues to expect that most of the negative impact from lower oil prices will appear in the first half of 2015, although it may be even more front-loaded than projected in January”

- Bank of Canada

The Bank of Canada decided to maintain its overnight interest rate unchanged at 0.75% following a shocking move to cut borrowing costs in January. Central bank Governor Stephen Poloz appeared to be somewhat optimistic about the economy’s recent performance, dampening speculation of another interest rate cut to cushion Canada's economy against negative impact of the oil price crunch. Poloz admitted that the oil price shock has had a negative impact on the nation’s economy, but highlighted that the country’s performance in 2014 was supported by stronger growth in non-energy exports and investment, instilling some confidence in the country’s economic resilience and mitigating negative impact of plunging oil prices. Statistics Canada reported Tuesday the economy expanded 2.4% on an annualized basis in the fourth quarter of 2014. Nevertheless, the BoC expected the worst yet to come, with the majority of the devastating impact from lower oil to be reflected in first half of 2015. In addition, falling inflation caused by declining oil prices was one of the aspects the central bank outlined in its statement. Yet, it said that consumer prices have been sliding according to the BoC’s expectations.

The US was said to be the main driver of growth in the global economy, which would be also beneficial for Canada and its export sector.

AUD

“Looking ahead, we think there is a reasonable prospect of a lift in the retail sector, especially given lower petrol prices, lower interest rates and signs of renewed strength in the housing market”

- Adam Boyton, chief economist at Deutsche Bank

Australia’s retail sales rose in January, adding to signs that consumer spending is gradually increasing in response to lower interest rates. Retail sales climbed 0.4% to $23.88 billion in January after rising 0.2% in the preceding month, the Australian Bureau of Statistics reported. Four of the six retail sub-sectors contributed to the increase in retail sales, led by rises of 2.2% for department store sales and 2% for cafes, restaurants and takeaways.

Meanwhile, a separate report showed Australia’s trade balance gap almost doubled in January, due to increase in imports. The trade deficit widened to $980 million in January from a revised $503 million a month earlier, the Australian Bureau of Statistics said, coming in weaker than economists’ expectations of a deficit worth $940 million. The value of imports surged by 3% in the reported month, influenced by a weaker Australian Dollar. Exports climbed 1% in seasonally-adjusted terms over the month, driven by a 2% increase in non-rural good exports. Australia's trade sector has been struggling over the last few years, particularly as prices of some of Australia's main export goods have plummeted sharply, such as iron ore. Export commodity prices have tumbled 20% last year, and are down 41% from a peak in July 2011, according to Reserve Bank of Australia’s data.