Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The decline in orders from abroad paints a dim picture. But we expect the Chinese economy to stabilise, which could feed through to German industry.”

- VP Bank

Industrial orders in Germany unexpectedly dropped in August, fuelling fears that Europe’s largest economy is being hit by slowing global growth. Orders, adjusted for seasonal swings and inflation, dropped 1.8% on a monthly basis in the given period, following a revised decrease of 2.2% in July. The reported number missed market expectations of a 0.5% increase in August. On a yearly basis, the gauge advanced 1.9% in the reported month, after posting a revised 1.3% fall in the previous month. At the same time, the market consensus projected an increase of 5.6% year-on-year in August. The recent data enhances a picture of waning demand from abroad, especially China and other emerging markets. That suggests the strong German exports, which supported growth in the first half, could lose momentum. Meanwhile, August factory orders don’t yet reflect the impact of Volkswagen’s cheating on the US emissions tests revealed in September.

In the meantime, the latest Euro zone’s retail PMI data showed a fifth straight monthly increase in sales in September, with the rate of growth picking up slightly from that seen in August. The retail PMI measure reached 51.9 points in September, up from 51.4 in the preceding month.

USD

“There is a double whammy here - one of the strong Dollar, and it is happening in an environment where global demand is weak.”

- TD Securities

The US trade deficit widened in August by the most in five months, as imports picked up and weaker overseas growth limited sales to customers abroad. According to Commerce Department, the gap increased 15.6% year-on-year to $48.3 billion in the reported month, following a revised $41.8 billion in July. Meanwhile, imports rose 1.2% in August to $233.4 billion from $230.6 billion in the prior month. At the same time, US exports decreased 2% to $185.1 billion in August. The widening trade gap with other nations revealed the US economy's vulnerabilities to a strong Dollar and weak demand in foreign markets, which could impose further caution on the Federal Reserve's plans to hike interest rates.

At the same time, Federal Reserve Bank of San Francisco President John Williams expects the regulator to start normalising monetary policy in 2015, despite weak job growth numbers observed earlier last week. However, he declined to comment, whether a hike will already occur in October or the Fed will wait for two more months. Williams noted that by adding 150,000 jobs every month over the medium term, the US would eventually reach the unemployment rate of 3% in the long run. He underlined that it is normal to estimate further payroll gains of less than 200,000 per month.

GBP

“Increasing demand is combining with very low supply to drive robust underlying house price growth.”

- Halifax

British house prices dropped the most in more than a year on a monthly basis in September. According to Halifax survey, the average cost of a home declined 0.9% from the previous month, compare to a 2.7% surge in August, while market expected prices to rise by a monthly 0.1%. Nevertheless, the mortgage lender noted in the statement that monthly changes are volatile and strengthening demand for homes in the UK means the dip may be temporary. From a year earlier, house prices advanced 8.5% in September, down from 9% in the prior month.

Meanwhile, the Halifax also added that housing demand in the UK has been strengthening recently, underpinned by economic growth, rising real earnings and very low mortgage rates. Therefore, there is little reason to expect any fundamental shift in the key market drivers over the coming months. At the same time, the Halifax survey contrasted with another measure of British house prices, compiled by rival mortgage lender Nationwide, which found prices rose more quickly in September than in August.

CAD

“On a volume basis, the trade report remains a disappointment but the deterioration isn’t as dramatic as the headline would suggest.”

- Desjardins Capital Markets

Canada's trade balance with the rest of the world deteriorated in August, as a decline in commodity prices fuelled a steep drop in exports. The official report revealed the gap of C$2.53 billion in the reported period, while market consensus bet on C$1.17 billion trade deficit. July's trade data was revised, and now it indicates the trade deficit in the month was C$817 million. The larger gap was mainly caused by a drop in Canadian exports, which declined 3.6% to C$43.95 in August, indicating the largest one-month fall in over three years. In the meantime, imports rose 0.2% to C$46.49 billion, as prices rose 0.3% and volumes fell 0.1%.

Additionally, activity in all sectors of the Canadian economy slowed down in September, the Ivey survey revealed on Tuesday. The PMI indicator, which is calculated by surveying 175 purchasing managers from all sectors of economic activity, declined from August’s 58 points to just 53.7 points last month. The indicator came in worse than estimated as analysts suggested that a decline would push the PMI down to only 54.1 points. Canada has been recently suffering from low oil prices, which dragged the pace of economic expansion lower and resulted in the recession during the first two quarters of this year.

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 the official cash rate unchanged at a record low for a fifth month in a row, pointing to increased uncertainty surrounding the global economic outlook due to slowdown in China and east Asia. The Board decided to leave the cash rate at 2.0%. The central bank said that a moderate expansion continued in Australia, even though growth had been somewhat below longer-term averages for some time. Yet, economic expansion was accompanied with stronger growth of employment and a stable rate of joblessness over the past year. The RBA admitted that the nation’s economy was set to operate with a degree of spare capacity for some time yet, with domestic inflationary pressures subdued. Inflation was estimated to remain consistent with the target over the next one to two years, even with a lower exchange rate. Most economists expected the RBA to remain on hold well into next year, while markets are pricing in a 65% chance of a cut below the current 2%, taking the interest rate to a new record low of 1.5%. Meanwhile, Australia's trade deficit widened in August to A$3.1 billion, compared with a forecast for a deficit of A$2.4 billion. Total exports came in at A$26.5 billion, while and total imports at A$29.6 billion.

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