News and views
Weak US data, better numbers in Europe and resilient US equities all left DXY somewhat softer in London/NY. EUR/USD found buyers in the European morning on a variety of factors, peaking at 1.4328 but struggled to extend gains in NY, spending most of its time in the high 1.42’s. Much attention was paid to the upside surprises in German and French Q2 GDP, both rising 0.3%. USD/JPY was a simpler story, sinking from 96.25 to 95.60 on the weak US retail sales and jobless claims data then extended to 95.25 in late NY. AUD/USD rallied firmly in the London morning from the high 0.83’s to an 0.8454 high before risk appetite was thumped on the dismal update on the US consumer, knocking AUD/USD back to around the figure. The Aussie probed to the 0.8370 area in the NY morning as US equities hit their intra-day lows (DJIA about -55pts).
But equity markets managed to spend most of the session above water despite the US data, SPX trading up 0.7% in its final hour, helping the likes of AUD and NZD. The NZD touched 0.6815 in the London morning, shed 40 pips on the retail sales release then spent much of its time chopping around 0.6780-0.6805.
Risk appetite pushed the US 10 year Treasury yield up to 3.76% in London before Treasuries rallied back on the US data and indeed didn’t look back en route to 3.60%. Comex copper was resilient in the face of the US data, gaining about 3% while NYMEX crude oil whipped around $70-72/bbl, lacking clear direction.
US retail sales fell -0.1% in June, weaker than the market expected. The “cash for clunkers” scheme boosted auto sales by 2.4%, but this appears to have constrained spending elsewhere by more than expected – after all, even with the cash handout, a car is still a major expense. Gasoline sales fell 2.4% on lower prices, while spending rose on healthcare (which tends to rise in a recession) and clothing.
US initial jobless claims ticked up slightly to 558k in the week to 7 August.
However, continuing claims for the previous week were lower than expected at 6202k. The claims figures should stabilise from here, as the distortions relating to the timing of the annual auto sector shutdown drop out of the equation.
Eurozone GDP fell by just 0.1% in Q2, much better than the 0.5% drop the market was expecting. Of the largest economies, France and Germany both recorded growth of 0.3% for the quarter, while Italy contracted at a slower pace. The limited breakdown available so far suggests that consumption and net exports made positive contributions, while business investment remains the biggest drag on growth in the region.
Outlook
We placed a lot of importance on the break-out through 0.66 last week. And we would place a lot of importance on the successful recovery from that level this week. This tells us that the medium term uptrend is still intact. We thus retain our upward bias on NZD/USD near term as global data momentum still remains favourable for commodity currencies in our view.
