Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The Euro zone manufacturing sector continued to grow in April, but the dip in the rate of expansion will serve to check recent optimism that the ECB’s quantitative easing programme has bought a guaranteed ticket to recovery for the region.”

- Markit

Euro zone’s manufacturing PMI came at 52.0 in April, beating expectations for a no change from 51.9 points a month before. Slower pace of development is considered to be disappointing, since it was expected that ECB’s QE would bring more pronounced boost and recovery. Meanwhile, the Euro zone’s quarterly economic growth at 0.4% underlines the marginal pace of economic recovery. Elsewhere, German manufacturing PMI advanced to 52.1, overshooting expectations of 51.9. Rather slow pace of sector’s growth can be explained by weaker production and new orders. Furthermore, new export business expanded at the slower pace, despite a weaker Euro.

Meanwhile, French manufacturing sector’s activity dropped to 48.0 points, down from 48.8 in March and also worse than estimated by analysts at 48.4. French manufacturing sector has been in the contraction territory since May of the previous year. Despite falling prices, demand for any kind of products stepped lower, which weakened growth of new businesses and manufacturing industry, in particular. Nevertheless, the IMF forecasts the French economy to add 1.2% this year and 1.5% in 2016. Surprisingly, the third biggest European economy showed a gain in manufacturing activity to 53.8 points, reaching the 12-month high, even though analysts had expected Italy’s PMI to come at just 53.4 points.

USD

“It was a difficult winter for manufacturers and it appears they are still hurting after the strong run in the dollar late last year”

- Chris Low, chief economist at FTN Financial

Orders for US factory goods recorded the biggest rise in eight months in March, amid increased demand for transportation equipment. Yet, the underlying trend remained weak due to a strong Dollar. According to the Commerce Department, new orders for manufactured goods increased 2.1% following seven monthly drops, buoyed by a 13.5% advance in orders for transportation equipment. Orders in a key category that tracks business investment plans ticked up a 0.1%. It was the first advance in this category since last August. Manufacturing, which makes up around 12% of the US economy, has been derailed by the strong Greenback and plunging crude oil prices, which have been putting a squeeze on the profits of multinational corporations and oil companies. The Dollar has gained 12% versus the currencies of the nation’s main trading partners since June amid expectations of monetary policy normalization and economists predict it could slash 0.6 percentage point off growth this year.

The factory data added to reports on auto sales, housing and employment in suggesting the US economy was regaining some momentum, but probably not fast enough to persuade the Fed to begin raising interest rates next month, as most analysts had estimated at the start of the year.

AUD

“The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices”

- Glenn Stevens, RBA Governor

The Reserve Bank of Australia cut interest rates to a new low against the backdrop of a deteriorating economic outlook and a stronger exchange rate. The RBA slashed the benchmark cash rate by 25 basis points to 2.0% in an attempt to back up demand, following the surprise decision to keep rates unchanged at 2.25% in April. Today’s move marked the second time this year the central bank has eased its monetary policy, but the bank did not indicate whether it considers to loose policy further. Lower interest rates should make the Australian Dollar less attractive to foreign investors, pushing the value down and giving a much-needed support to industries such as tourism, manufacturing, agriculture and higher education.

Meanwhile, the number of Australian home-building permits rose in March, supported by demand for apartments and fuelled by the low interest rate environment. Approvals increased by 2.8% from February, and by 23.6% from the previous year, the Australian Bureau of Statistics said. Separately, ANZ's survey of job advertisements showed a 2.3% uptick in April, a rebound following the first fall in ten months in March. Also, according to the Australian Bureau of Statistics, the nation's trade deficit narrowed a seasonally adjusted 18% to $1.32 billion, following a deficit of $1.61 billion in February, which was revised upwardly from an originally reported $1.26 billion. Both imports and exports declined 2% in the reported month.

CNY

“The divergence between official and the HSBC PMI is normal as it’s more difficult for small firms to get loans and participate in projects”

- Larry Hu, an economist at Macquarie Securities

Business activity in China’s manufacturing sector slowed considerably last month as new orders fell, fuelling speculation the Chinese government may step up stimulus measures to revive growth in the world’s second biggest economy. The final HSBC manufacturing PMI came in at 48.9, against economists’ forecast of 49.4 and lower than the preliminary estimate of 49.2. A reading below the important 50-mark threshold points to contraction in the sector. The report showed new orders slumped at the fastest rate in a year while production levels stagnated. HSBC's data came after an official survey released last week showed that manufacturing activity remained at 50.1, unchanged from March. Analysts said the different readings reflect the greater weighting given to smaller, export-led companies in the private survey. The official measure, however, has a greater proportion of big state companies.

China’s economy showed the slowest quarterly growth in six years in the beginning of the year amid a downturn in the property sector, overcapacity in heavy industry and sluggish export demand. Beijing has tried to underpin the moribund economy by stepping up infrastructure spending, encouraging cutting interest rates and offering tax cuts, while avoiding the same sort of massive lending binge it used to boost the economy after the 2008 global financial crisis. Larger companies have generally been the first to benefit.