Daily Forex Fundamental Overview

Fundamental Analysis

USD

“We are moving past the very weak period for the manufacturing sector from early on this year, but that activity has yet to meaningfully increase”

- Daniel Silver, an economist at JPMorgan

New orders for US factory goods recovered strongly in June amid robust demand for transportation equipment and other goods, a positive sign for the nation’s struggling manufacturing sector. According to the Commerce Department, new orders for manufactured goods surged 1.8% following the 1.1% decline in May. Factory activity was hurt by a strong US Dollar as well as spending cuts in the energy sector after last year’s steep drop in crude oil prices. Weak global demand also weighed on business activity in the manufacturing sector, which makes up 12% of the US economy. Even though there are signs that the energy spending drag is waning, the Greenback strength will likely to remain a hurdle. The US Dollar has risen 15% versus major counterparts since June 2014. Orders for transportation equipment soared 9.3% in June, reflecting a 65.4% surge in aircraft bookings.

The Commerce Department also reported orders for non-defense capital goods excluding aircraft, considered as a measure of business confidence and spending plans, rose 0.7%, compared with the 0.9% increase reported last month. Shipments of core capital goods, used to calculate business equipment spending in the GDP data, climbed 0.3% in June. Manufacturing inventories grew a solid 0.6%, which was more than the government estimated in its second-quarter GDP report published last week.

GBP

“Commercial activity was a key growth driver during July, which partly offset ongoing weakness in civil engineering and softer residential building trends”

- Tim Moore, senior economist at Markit

Growth in the UK construction industry unexpectedly slowed in July, hurt by sluggish housebuilding and civil engineering. The Markit/CIPS UK construction PMI declined to 57.1 after reaching 58.1 in June, the highest level in four months. Construction data showed housebuilding activity rose at the slowest pace since April, marking one of the weakest growth rates since mid-2013 and underlining the challenge that policy makers face in dealing with the UK’s chronic housing shortage. Lack of new housing and sharply increasing demand due to historically low rates continue to push house prices upward. According to the BoE's latest credit report, the number of secured loans for house purchases approved in June surged to 66,582, compared with an upwardly revised 64,826 loans approved in May, while the volume of mortgages was the highest since 2008. The government last month announced a plan to remove obstacles to building new houses.

The UK's overall economic performance improved in the second quarter as GDP rose to 0.7% between April and June, up from 0.4% in the beginning of the year. The increase in services sector output was the main upward drivers. Significant support also came from a highly volatile oil and gas output from the North Sea, surging the most since 1989.

AUD

“The Australian dollar is adjusting to the significant declines in key commodity prices”

- Glenn Stevens, RBA Governor

The Australian Dollar rebounded from the lowest level in six years after the Reserve Bank of Australia kept interest rates unchanged and was more comfortable with the level of the Aussie, whose 20% depreciation versus the Greenback in the last 12 months has supported exporters as well as import-exposed business. As expected the RBA kept the cash rate steady at 2% for the third month in a row, but left the door open for a further cut this year. RBA Governor Glenn Stevens reiterated that inflation was contained and growth remained sub-trend. Last month Stevens said Australia's potential economic growth is probably now weaker than the 3%-3.25% annual rate the central bank has been estimating, partly due to slower population growth, which is putting less downward pressure on prices and explains the levelling off in the unemployment rate. However, he appeared satisfied with recent stability in the labour market, despite spare productive capacity.

The central bank last cut rates by 25 basis points in May, following a similar reduction in February after 18 months on hold. Despite some uneven economic data since then, the RBA remains reluctant to make a third cut, partly due to concerns about Sydney's overheated property market and household indebtedness. The RBA also doubts the efficiency of lower rates at this stage of the current cycle.

NZD

“Despite lower quarterly growth, this is still the 11th consecutive quarter of employment growth, making it the second-longest period of growth since the period between 1992 and 1996.”

- Diane Ramsay, labour market and household statistics manager

New Zealand's unemployment rate climbed as the number of new jobs created failed to meet a growing working population driven by record migration. The jobless rate rose to a seasonally-adjusted 5.9% in the second quarter, compared with 5.8% in the three months through March, according to Statistics New Zealand. Employment increased 0.3% in the measured quarter, against economists’ expectations for 0.5% jobs growth. The indicator also lagged behind the 0.7% growth of the working population for the first time since the third quarter of 2012. Job growth was strongest in the manufacturing sector, followed by construction. At the same time participation rate slid to 69.3% from a revised 69.5%. As the figures appeared to be worse than expected, they will likely to prompt the Reserve Bank of New Zealand to consider further monetary policy easing to withstand the ongoing weakness in global dairy prices, ultra-low inflation, as well as softer economic activity. Most economists predict the Official Cash Rate to fall to 2.5% by the end of the year, down from the current 3.0%.

The flood of new labour has kept wage inflation tame as more people compete for jobs, while the growing economy has been able to accept new workers. The labour cost index showed private sector ordinary time wage rates increased 0.5% in the quarter, up from a 0.3% pace in March. Annual private sector labour costs surged 1.8%.

CNY

“China's economy is in transition mode to a services-driven economy”

- Tommy Xie, an economist at OCBC

Business activity in the Chinese services sector rose at the fastest pace in 11 months in July amid stronger new business, a positive sign at a time when factories of the world’s second biggest economy are struggling. The Caixin services PMI surged to 53.8 in July, compared with June’s reading of 51.8, and reaching the highest level since August 2014. A sub-index measuring new business increased to 54.0, from 52.2 in June, while the employment sub-index also climbed, indicating increased hiring amid stronger new businesses. Both input prices and selling prices rose in July, indicating a slight pick-up in inflationary pressure. The services sector has made up for the bigger part of China's economic output for at least two years, with its share increasing to 48.2% last year, compared with the 42.6 percent contribution from manufacturing and construction.

The services PMI data marked a sharp contrast with the Caixin China manufacturing PMI for July, which was released earlier in the week and surprised economists to the downside by coming in at 47.8, compared with the preliminary reading of 48.2. The divergent readings on the services and manufacturing sectors will not necessarily keep the mainland from hitting its "around 7%" target for GDP growth this year.