Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The euro area economy has gained further momentum since the end of 2014”

-Mario Draghi, ECB President

After being briefly interrupted by a protestor chanting “end ECB dictatorship”, Mario Draghi, ECB President, said that there were signs that a recently launched quantitative easing programme supported the Euro zone economic recovery. Although the central bank expects the currency bloc’s economy to strengthen, it does not plan to curb or curtail its money-printing scheme. Draghi was also surprised that an end to the programme is being discussed so soon after it was launched. While Moody’s Investors Service warned the Frankfurt-based central bank that it could soon run out of eligible bonds from some governments, Draghi brushed aside this warning. ECB President also noted that borrowing conditions for companies and households have "improved notably". He also agreed with critics of the QE programme, who fear that asset-buying scheme might fuel fresh asset bubbles, but said that there was no signs that such bubbles were emerging. Before the press conference, the ECB left its benchmark rate unchanged at all-time low of 0.05% in line with expectations. The decision came on the backdrop of signs that the Euro zone is turning the corner after years of recession and stagnation. Recent data from Markit showed that the Euro bloc’s economy expanded at the fastest pace in nearly a year in March. Meanwhile, the ECB raised the maximum funding that Greek banks can obtain by 800 million euros, lifting the ceiling on Emergency Liquidity Assistance to 74 billion euros.

USD

“This uptick shows builders are feeling optimistic that the housing market will continue to strengthen throughout 2015”

-David Crowe, NAHB chief economist

US industrial production dropped more than expected in March and posted the first quarterly fall since the end of the Great Recession. Industrial production, which measures the output of manufacturers, utilities and mines, declined a seasonally adjusted 0.6% from the previous month, according to the Federal Reserve. The main contributor to the fall came from a payback in utility output, which contracted 5.9% from the prior month. In addition to that, production of mines fell 0.7%, marking the fifth decline in six months, as lower crude oil prices continue to weigh on the sector. For the first quarter of 2015, industrial production declined at an annual rate of 1%.

A separate report showed sentiment among US homebuilders rebounded after a three-month slide and rose to the highest level this year. The NAHB/Wells Fargo Housing Market index increased to a preliminary 56 in April from a revised 52 in the preceding month. Readings above 50 mean more builders see housing market conditions as favourable than poor. The reading has not been below the 50-mark threshold since June 2014 and stood at 46 during April 2014. Moreover, builders are feeling confident about the outlook for the rest of the year, as the gauge, which tracks sales expectations for the next six months, increased to 64 points, its highest level so far this year.

AUD

“We are extremely confident that the bank will finally deliver the much anticipated second cut of 25 basis points on May 5”

-Bill Evans, Westpac chief economist

Consumer confidence in Australia dropped for a second consecutive month in April, reinforcing the view the Reserve Bank of Australia should consider further rate cuts. The Westpac-Melbourne Institute Consumer Sentiment Index tumbled 3.2% to 96.2 in April from 99.5 last month, as Australians felt increasingly concerned about the economic outlook and their personal finances. A figure above 100 indicates that optimists outweigh pessimists and vice versa.

Meanwhile, the International Monetary Fund warned that the RBA may need interest rate cuts again in case inflation continues its downward spiral. The central bank cut the key cash rate by 0.25% in February but kept it unchanged in March and April. Yet, the country managed to keep its top AAA sovereign rating. Moody's Investors Service said that Australia’s top-notch credit rating is supported by the economy's large size, its flexibility and relatively strong growth as well as government debt ratios. The rating agency added that the expected slowdown in China, the world’s second biggest economy, over the next two years could reduce Australia's resource-related investment and mining exports. Nevertheless, liquid natural gas exports will increase and, coupled with consumption growth, will keep Australia's economic output growth above 2% on average in 2015 and 2016.

CAD

“The impact of the oil price shock on growth will be more front-loaded than predicted in January, but not larger”

- Bank of Canada

The Bank of Canada maintained its key interest rate on hold and said effect from an oil-price shock may be waning. The central bank kept the benchmark rate on overnight loans between commercial banks at 0.75% for a second consecutive meeting after an unexpected rate cut in January. The BoC considerably cut its first quarter growth expectations to 0% from 1.5%. Yet, outlook for Q2 and Q3 was revised upwards to 1.8% and 2.8%, respectively. In 2016, the central bank expects the nation’s economy to grow at 2.5%. The BoC added that despite the devastating effects of lower crude prices, non-energy exports, investment and labour market conditions are ameliorating and will flourish in the middle of the year, largely due to strong US demand. The headline inflation is estimated to accelerate to 1% and 0.8% in Q1 and Q2, respectively, up from 0.5% and 0.3%.

Meanwhile, Canada’s manufacturing sales unexpectedly declined in February amid falling shipments from car and aerospace manufacturers. Sales dropped 1.7% to C$50 billion, Statistics Canada reported, following a revised 3% drop in January. The decline in February was caused by motor vehicles, which plummeted 15%. Excluding autos, however, manufacturing sales slid 0.1%. Sales of aerospace products plunged 26% in February due to the impact of a stabilizing Canadian currency. Sales declined 1.5% from the same period last year.

CNY

“If you look at Q1, exports were poor, industrial production was poor, FAI was much slower, retail sales soft, so how can GDP in real terms still be 7 percent?”

- Kevin Lai, senior economist at Daiwa

China’s economic growth pace slowed to the lowest in six years in the beginning of 2015, while weakness in major sectors pointed to a further loss of momentum for the world’s second-biggest economy. The Chinese economy grew 7% from a year earlier, matching economists’ median forecast and compared with 7.3% in the preceding quarter. Measured on a quarterly basis, growth slowed to a seasonally adjusted 1.3% between January and March, the National Bureau of Statistics reported, down from 1.5% in the previous three months. The data built up pressure on the Chinese government to ease fiscal and monetary policy further in an attempt to underpin the economy. China’s Communist Party officials have already lowered its official growth target for this year to around 7%, which would be the nation’s slowest annual expansion in 25 years. Yet, recent indicators suggest that the economy could be losing steam more rapidly than many analysts had predicted. In March, industrial production rose 5.6% from a year ago, the slowest gain since late 2008 and well below economists’ expectations of 6.9%, as factories continued to struggle with deflationary pressure and weak domestic and overseas demand. Moreover, land purchases by real estate developers plummeted 32% by area in the first three months of the year, while the real estate sector, China’s major economic pillar, posted an annual 8.5% rise in property investment in the first quarter, the weakest since 2009.