Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The conditions appear to be there in today's perspective to support relatively strong growth, driven by both domestic and external demand”

- Bundesbank

Growth in Germany, the Euro zone’s number one economy, is set to remain solid in the second half of the year supported by both the domestic and export economy, according to the Deutsche Bundesbank estimates. The optimistic outlook comes after Germany reported GDP growth rate of 0.4% in the second quarter, shy of forecasts for 0.5%. Nevertheless, Germany is seen benefitting from big real income gains at home, the Euro area’s recovery, the weaker Euro and accelerating growth in the US and UK, two key trading partners, the German central bank said in a monthly economic report. The Bundesbank also expressed confidence in Greece, arguing that the nation’s economy would gradually recover, thanks to the bailout, tourism income and investments financed by European structural funds. However, the German central bank was more cautious on China, which unexpectedly devalued its Yuan last week, raising fears that its outlook is worse than earlier expected with growth at its slowest in more than two decades.

Meanwhile, the latest survey of Euro zone trade activities indicated that the weaker Euro supported exporters. Exports jumped 12% to 182.7 billion euros from a year ago, while imports came in at 156.4 billion euros, recording a smaller 7% growth. On a monthly basis, exports increased 1.4% in June, while imports added 1.2%.

USD

“The fact the builder confidence has been in the low 60s for three straight months shows that single-family housing is making slow but steady progress”

- Tom Woods, NAHB Chairman

US homebuilders’ sentiment rose to the highest level in almost a decade this month, suggesting growing confidence in a gradually improving housing market. The housing market index climbed to 61 in August, the highest since November 2005, up from 60 the previous two months, the National Association of Home Builders/Wells Fargo reported. A reading above the 50-mark threshold indicates that most builders see conditions in the market as positive. The reading has been positive for the past year, following five months in early 2014, when the index was in negative territory. In June, sales of existing homes surged to their highest since February 2007, while newly built single-family home sales dropped in June by 6.8% to their lowest level since November 2014, as a shortage of inventory drives up prices at an unsustainable pace.

A separate report showed the Federal Reserve Bank of New York’s Empire State factory index plummeted to minus 14.9 in August, the lowest level since April 2009. A robust job market and historically low mortgage rates will probably keep underpinning demand for residential real estate, helping home building sector contribute to overall economic growth. Gains in construction will be needed to help offset any slowdown in manufacturing as factories struggle with a strong Dollar and bloated inventories.

AUD

“Further depreciation of the Australian dollar was expected to impart stimulus to the economy through stronger net exports”

- Reserve Bank of Australia

The Reserve Bank of Australia said recent weakening of the Aussie Dollar is supporting economic growth and helping the economy to adjust from a decade-long period of mining investment toward stronger growth in exports. For the first time in almost two years the central bank said the Australian Dollar was not overvalued, reinforcing the view that further interest rate cuts are unlikely to be needed. In recent months, the local Dollar has fallen to its lowest level in six years. Policy makers are becoming more confident that post-mining boom growth is gaining steam, citing recent stronger data including hiring. The RBA is also relying on the US central bank to hike rates later this year, which could fuel a further drops in a local currency that has already lost 8% in the past three months. The RBA was a little more upbeat on its key trading partner China, suggesting threats to growth in the world’s second biggest economy had “receded somewhat”. Still, the central bank said Beijing’s “policy response to the recent volatility in Chinese equity markets had clouded the medium-term economic outlook.”

The RBA has cut interest rates two times this year in response to weakening growth and steep declines in commodity prices. Financial markets have priced in some risk that a further cut will be needed over the next year.