Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“It still seems most probable that the euro zone will avoid renewed deflation and that consumer price inflation will trend gradually up from the final months of 2015.”

- Howard Archer, an economist at IHS Global Insight

Consumer prices in the Euro zone continued to rise modestly in August, despite falling energy prices. Inflation in 19-country currency bloc held at 0.2% in the year to August, unchanged from the previous month. Core inflation, which excludes volatile food and energy prices, rose 1.0% in August, compared to the 1.0% increase seen a month before. The headline inflation has been in what the ECB calls the 'danger zone' - below 1% since October 2013. In Italy, consumer prices rebounded after a negative 0.1% in July to a 0.2% growth in August. In annual terms, cost of living in the Euro zone’s third biggest economy climbed 0.2% in the reported period. The data came ahead of the European Central Bank policy meeting later this week, with some analysts believing that the central bank will eventually ramp up its asset-buying programme.

Meanwhile, German shoppers spent more money in July compared with the preceding month. Retail turnover in the Euro area’s number one economy rose 1.4% in real terms on a monthly basis in July, up from s revised 1.0% drop a month earlier. When measured on an annual basis, the reading surged 3.3% in the reported month after the 5.2% growth in June. The German economy is expected to continue on a positive path and grow well in the second half of 2015, the German Bundesbank estimated.

AUD

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

- Glenn Stevens, RBA Governor

The Reserve Bank of Australia kept interest rates on hold at 2% after the recent stock market turmoil as a weaker Australian Dollar and past rate cuts have a positive impact on growth. The central bank said the Australian Dollar was adjusting to the significant drops in key commodity prices. Since the August meeting, the Aussie has lost 2.5% versus the US Dollar and 1% on a trade weighted basis. Meanwhile, the price of iron ore, Australia’s biggest export, has jumped 5%. At the same time, there have been signs that the Fed may postpone its widely anticipated September rate hike due to ongoing concerns about cooling China’s economic growth and turbulence in global equity markets. Economists believe the longer the US central bank holds off lifting rates, the greater the chances of further easing from the RBA. Yet, most analysts expect Australia’s central bank to remain on hold for a while now, with a small share expecting one more cut, and markets pricing in around 30 basis-points cut in the year ahead.

Meanwhile, Australia’s building approvals rebounded from June’s decline and are predicted to remain strong for the remainder of the year. Approvals for the construction of new homes rose 4.2% in July, after falling 5.2% in June, driven by a 13.3% drop in the volatile multi-unit dwellings. Over the 12 months to July, building approvals were up 13.4%, the Australian Bureau of Statistics reported.

CAD

“We all know what has happened there – the massive fall in global energy prices. But, you know, 80 per cent of the economy is actually growing.”

- Stephen Harper, Canada’s Prime Minister

Canada’s current account deficit shrank slightly in the second quarter due to more favourable trade in goods and services. The country’s current-account deficit narrowed to C$17.40 billion, after an upwardly revised expansion to C$18.1 billion in the first quarter, Statistics Canada. The previous estimate showed a deficit of C$17.47 billion. The first-quarter figure remains the second-biggest deficit on record, trailing only a C$19.57 billion shortfall registered in the third quarter of 2010. A strong increase in exports in June helped to offset drops in April and May, and trim the trade in goods deficit to C$6.74 billion from C$7.07 billion in the first quarter. Overall exports of goods rose C$680 million to C$128.83 billion, largely due to higher prices. Total imports of goods increased by C$350 million to C$135.57 billion, in part due to higher shipments of motor vehicles and parts. The deficit on trade in services contracted by C$240 million to C$5.49 billion as non-residents boosted their spending in Canada.

In July, the Bank of Canada responded to weakening domestic growth, falling business investment and sluggish non-energy exports by cutting its interest rate from 0.75% to 0.5%. The central bank also downgraded its Q2 growth forecast from a positive 1.8% to a negative 0.5% and downgraded the Q3 recovery from 2.8% to 1.5%.

NZD

“Confidence may not be the economic engine that drives growth but it's critical for keeping the economic wheels turning”

- Cameron Bagrie, ANZ Bank chief economist

Business morale among New Zealand companies slid the lowest level in six years in August. A net 29.1% of respondents in the ANZ Business Outlook survey expected business conditions to deteriorate over the course of next 12 months, compared with a net 15.3% who had predicted it to worsen in the July survey. A net 12.2% forecast their own business activity to improve in the coming year versus 19.0% in the prior survey. Confidence in the agriculture sector has been hard hit by the precipitous decline in dairy prices, with a net 75.6% of farmers surveyed pessimistic. Whole-milk powder prices have been down more than 60% since February 2014, undermining the agriculture-dependent country’s economic performance. The Reserve Bank of New Zealand has considered the dairy sector as a major risk to financial stability. Prime Minister John Key, however, insists the mood of the business sector is "reasonably positive", as confidence declines to the lowest level since the height of the global financial crisis. At the same time Labour's Grant Robertson said Key was painting a "dishonest picture" as there was no sensible reading which indicated the survey was positive.

Treasury released its monthly economic indicators, estimating that the New Zealand economy grew 0.6% in the three months to June 30, lower than it had predicted in May's Budget. It estimated that growth may drop to 2% in 2015 due to sluggish domestic demand.

CNY

“There is insufficient growth momentum in the country’s manufacturing sector”

- Zhao Qinghe, an economist with the National Bureau of Statistics

Activity in China’s manufacturing sector continued to contract in August, adding to signs that the world’s second biggest economy is fast losing steam. The final Caixin/Markit manufacturing purchasing managers' index slid to 47.3 in August, the lowest level since March 2009 and compared with 47.8 in July. At the same time, the official PMI reading slipped to 49.7 last month, hitting the lowest level in three years, and down from 50.0 in July. This is the first time the official gauge has dropped below 50 in six months. China's recent slew of disappointing data has clouded the growth outlook for the second half of the year, with economists now expecting that growth could fall below 7% during the third and fourth quarter. The economy expanded an annual 7.0% in both the first and second quarter. Beijing has stepped up efforts to support growth and fend off deflationary threat, trimming interest rates and the reserve requirement ratio, the amount that banks must hold as reserves, last week. Despite this, economists predict data for August and September to remain subdued as sluggish overseas and domestic has confounded Beijing’s efforts. Nevertheless, Chinese Premier Li Keqiang that the nation’s economy was showing signs of improvement after a series of measures to underpin growth, though he said the government still needed to do more to ensure that growth did not come up short.