Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“People keep spending money because their job situation is good, and the record-influx of refugees also increases demand”

- Destatis

Sales at German retailers dropped unexpectedly on the month in October, whereas a solid increase on the year added to signs that private consumption would remain a key driver for growth in the Euro zone’s biggest economy in the final quarter of the year. German retail sales declined 0.4% on the month in real terms in October, following stagnation in the preceding month, according to the Federal Statistics Office. Measured on an annual basis, retail sales edged higher by 2.1%. From January to October, retail sales rose by 2.8% in real terms compared with the same period last year, marking the strongest increase since 1994. German consumers are benefiting from solid employment, increasing wages and nearly stable prices while low interest rates are giving them little incentive to save and cheap energy is freeing up additional cash for spending.

A separate report showed, consumer prices in Germany barely grew in November. In annual terms German CPI climbed 0.4%, following the 0.3% gain in the previous month, remaining well below the targeted level. Using the Harmonized Index for Consumer Prices, the inflation rate ticked up 0.3% in November.

USD

“Contract signings in October made the most strides in the Northeast, which hasn't seen much of the drastic price appreciation and supply constraints that are occurring in other parts of the country”

- Lawrence Yun, the NAR chief economist

US pending home sales increased less than expected in October, adding to signs that the housing market recovery was losing steam following a strong start to the year. According to the National Association of Realtors, its seasonally adjusted pending home sales index climbed 0.2% to 107.7. Strong job gains as well as low mortgage rates boosted sales for much of the year. However, rising home values and limited inventories have restrained further growth in the closing months of 2015. A limited selection of homes on the market has pushed up sales prices 5.8% from a year ago to a median of $219,600. A separate report from the realtor group revealed that finalized contracts to buy a home dropped to 5.36 million on an annualized basis in October, after recording one of the best readings of the recovery in the preceding month.

Looking ahead, the NAR predicts more improvement in home sales, although the extent of the gains will depend on inventory growth. Existing home sales are likely to increase to 5.3 million by the end of the next year to mark their highest level in a decade, the NAR expects.

CAD

“Thus, it may not be reasonable to expect Canada to see a substantial depreciation-related lift in export demand from the U.S., its dominant trade partner and strongest hope for external demand growth”

- Daniel Hui, J.P. Morgan Securities

Canada’s current account deficit shrank in the third quarter to the smallest level this year amid an increase in merchandise exports. The current account gap narrowed to C$16.21 billion in the third quarter from C$16.57 billion in the three months through June, sharply revised from an initially reported C$17.40 billion. Canada’s trade are benefiting from a weaker currency that has supported the nation’s exporters. The Canadian Dollar has lost 13% so far this year, making it one of the worst performers among major currencies. Canada’s exports rose by C$4.7 billion and imports increased by C$3.4 billion. The biggest export gains were in consumer goods and autos categories. Meanwhile, lower exports of energy products offset some of the gains. Improving exports are key for the Canadian economy after the Bank of Canada said that recovering exports will drive the economic recovery in the second half of the year.

In response to persistent slack in the Canadian economy, the central bank maintained its interest rate at 0.5% back in October. It also revised third quarter growth projections from 1.5% to 2.5%, while still voicing cautious optimism. The next BoC interest rate announcement is scheduled for Wednesday.

CNY

“With soft growth momentum and deflation pressures creeping up, we expect the authorities to further ease monetary policy and continue to implement an expansionary fiscal policy to prevent further slowdown of the economy in 2016”

- Li-Gang Liu and Louis Lam, ANZ economists

China’s manufacturing activity dropped to the lowest level in more than three years, reinforcing the view the world’s second biggest economy continued to cool despite a raft of government stimulus measures including six rate cuts since November 2014. The official manufacturing PMI slid to 49.6 last month, according to the National Bureau of Statistics, hitting the lowest level since August 2012 and missing the median forecast of 49.9. Sub-indexes of output, new orders, inventories and employment all slipped in the reported month. Moreover, input prices for raw materials declined to the lowest level this year. At the same time, the competing gauge of manufacturing conditions released by Caixin Media and Markit Economics rose to 48.6 in November, surpassing economists’ expectations for 48.3.

However, the official services sector PMI rose in November to 53.6, up from 53.1 a month earlier, driven by online sales over Singles Day on 11 November. China’s services sector has been a bright spot, helping to offset a precipitous slowdown in other industries. In the first three quarters of 2015, services made up 51.4% of the Chinese economy, up from 49.1% during the same period in 2014. China’s economy grew 6.9% in the September quarter, the worst performance since the global crisis.

AUD

“While GDP growth has been somewhat below longer-term averages for some time, business surveys suggest a gradual improvement in conditions in non-mining sectors over the past year”

- Reserve Bank of Australia

As widely expected, the Reserve Bank of Australia kept the official cash rate on hold at a historic minimum of 2% for the seventh consecutive month. Yet, the central bank left the door open for a further cut in 2016 to provide support to demand in case the necessity arises. The RBA said that the nation’s economy continued to expand moderately in the face of a large decrease in capital spending in the mining sector. Even though GDP growth remained below longer-term averages for some time, business surveys indicated a gradual improvement in conditions in non-mining sector over the past year. This was coupled by stronger growth in employment and a steady jobless rate. Inflation is predicted to be consistent with the target over the next one to two years, according to the RBA. Thus, in such circumstances, the central bank saw the need for the monetary policy to remain accommodative, as low interest rates are acting to support borrowing and spending.

Meanwhile, Australian building consents rose for the second month in a row, increasing a seasonally adjusted 3.9% on a month in October, signalling Australia’s construction boom remained strong. Moreover, Australia’s current account deficit shrank to $18.10 billion in the September quarter, from $20.51 billion in the preceding three-month period.

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