Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The last offer that we made was a very generous one. On the other hand, Europe can only stand together, if each nation takes on its own responsibility.”

- Angela Merkel, German Chancellor

After Greek voters supported Alexis Tsipras’ government by saying “no” to more austerity in exchange for a new round of bailout funding from its international creditors, Yanis Varoufakis, Greek Finance Minister, unexpectedly announced his resignation. Euclid Tsakalotos is taking over from his notorious and controversial predecessor. Meanwhile, the ECB said that it would keep its Emergency Liquidity Assistance to Greece unchanged at levels announced last Monday. Thus, Greek banks will continue to remain close thought out this week and might resume working at the end of the week, at best. Greek Prime Minister Alexis Tsipras has hours to prepare a plan to keep his country in the Euro zone, as European leaders meet later in the day in Brussels for another round of talks.

Separately, German factory orders dropped in May as orders from other Euro zone countries fell following a large gain in the preceding month. Industrial orders in the Euro bloc’s number one economy decreased a seasonally adjusted 0.2% in the reported month, whereas analysts had expected a 0.4% decline. In the preceding month, the measure gained a revised 2.2%. Measured on an annual basis, orders surged 4.7%. Meanwhile, the Spanish industrial sector remained in expansion for the fourth consecutive month in May, recovering after a slight setback in the preceding month. Spain’s industrial production rose 3.4% in May on a seasonally adjusted annual basis, following the previous month’s reading of 1.8%.

USD

“The majority of respondents’ comments are positive about business conditions and the economy”

-ISM

Even though activity in the US non-manufacturing sector rose in June, it fell shy of economists’ expectations. According to the Institute for Supply Management, non-manufacturing PMI came in at 56.0 in June, up from 55.7 a month earlier, which was the lowest level since April last year. Yet, the reading remained firmly in expansion territory.

Meanwhile, a separate report showed the US labour market was less strong in June, suggesting the Fed might be less willing to begin hiking interest rates on September. The central bank’s comprehensive gauge of employment conditions remained virtually flat at 0.8 points in the reported month, considerably below the 2 points economists had expected and following a downward revised 0.9 points in May. The US unemployment rate declined to post-recession lows of 5.3%, partly due to fall in participation rate, whereas more than 2.9 million jobs were added in the past twelve months. Still, most economists believe the Fed is likely to hike interest rates from all-time low in September, as the weekly jobless claims remain near the lowest levels of the business cycle, the number of vacant positions reached the highest level on record, and there were some signs of higher wage pressures, particularly in the quarterly employment costs index.

AUD

“In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending.”

-Reserve Bank of Australia

The Reserve Bank of Australia kept its official cash rate unchanged at 2.00%. While the rhetoric was largely unchanged, the RBA retained a soft easing bias. The central bank said the Australian economy continued to grow over the past year, albeit at a rate, which is below its long-term average. Overall, the economy is likely to perform with a degree of spare capacity for some time yet. In addition to that, given very slow growth in labour costs, inflation is seen to remain consistent with the target over the next one to two years, even with a lower exchange rate. The RBA reiterated its view that a further decline in the Australian dollar is seen as both “likely and necessary”. On May 5 the RBA slashed the cash rate to 2%, and the bank was waiting to see what impact, if any, looser policy settings would have on growth.

Meanwhile, Australia’s Melbourne Institute Monthly Inflation Gauge gained 0.1% in June following rises of 0.3% in May and April and 0.4% in March. Measured on a yearly basis, the inflation measure rose by 1.5% in June, after an increase of 1.4% in May. Automotive fuel was the main contributor to the overall price climb with 4.2% increase, while fruit and vegetables’ prices added 0.7%. Separately, Australia and New Zealand Banking Group Job Advertisements monthly index rebounded in June, rising 1.3% following an almost flat result in May.

NZD

“We expect further deterioration in economic momentum over the second half of the year.”

- Jane Turner, senior ASB economist

New Zealand business confidence declined to the lowest level in three years in the second quarter as the economic outlook lost lustre. A net 5% of firms in the NZIER’s quarterly survey of business opinion anticipated general business conditions to improve, down from 23% three months earlier and marking the lowest level since June 2012. A net 2% of respondents appeared to be pessimistic about their expected profitability in the coming quarter, down from an optimistic reading of 12% in the previous three-month period. Meanwhile, inflation pressures remained weak, with only a net 1% of firms able to lift prices over the past quarter, the lowest level since 2009. A net 25% of financial services firms predict domestic interest rates to drop over the next 12 months, an increase from the net 4% in the previous quarter.

Fitch Ratings confirmed New Zealand's long-term foreign and local currency ratings at 'AA' and 'AA+' respectively, saying the outlook remained positive. The country's status as a high-grade sovereign credit is backed up by a credible and flexible economic policy framework, supportive business environment and high standards of governance. The rating agency expects the New Zealand economy to expand 2.8% in 2015 as lower agricultural production due to drought, and weaker demand following a fall in dairy prices, has slowed New Zealand's economic momentum.

CAD

“On the other hand, domestic demand is strengthening in regions that are less exposed to the energy sector”

-Bank of Canada

Canada’s purchasing activity rose in June at a slower pace than expected, retreating from its high reached in the preceding month. Ivey PMI came in at 55.9, with a reading above the 50-mark threshold indicating expansion. The slower growth followed an increase to 62.3 in May, the highest level in 19 months. Ivey PMI measures a monthly changes in economic activity based on a survey of purchasing managers from across Canada. The reading includes both the public and private sectors and consists of five components, including purchases, employment, inventories, supplier deliveries and prices.

Meanwhile, the Bank of Canada’s business outlook survey showed a diverging outlook across regions, as the economy being stuck between robust US demand that boosts economic outlook and lower crude prices that continue weigh on the energy producing regions. Yet, BoC Governor Stephen Poloz expected the economy to begin to recover in the second quarter and then gather momentum in the middle of the year. Economists remained doubtful concerning such a rosy outlook, particularly after April’s disappointing GDP data. The Canadian economy contracted 0.1% in the reported month, marking the first decline in a row. The central bank is due to release its next interest rate announcement coupled with the Monetary Policy Report on July 15.