Daily Forex Fundamental Overview

Fundamental Analysis

USD

“The job market appears to have stumbled in April”

- Moody’s Analytics Inc

The number of Americans applying for unemployment benefits increased more than expected last week, recording the biggest gain in more than a year, but the underlying trend still continued to indicate a strengthening labour market. Initial claims for jobless benefits rose by 17,000 to a seasonally adjusted 274,000 in the week ended April 30, according to the Labor Department. Despite the higher-than-expected rise, claims are still near historically low levels. Claims hit a four-decade low of 248,000 in the week ended April 16 week, the lowest level since 1973. Last week was also the 61st straight week that initial claims were below 300,000, extending the longest streak since 1973 amid steady job growth. The four-week moving average of claims, considered a better gauge of labour market trends as it smoothes out week-to-week volatility, increased 2,000 to 258,000 last week.

The Labor Department is expected to report later in the day that nonfarm payrolls advanced by 202,000 jobs in April following a gain of 215,000 in March. The unemployment rate is seen to remain unchanged at 5.0% and average hourly earnings are predicted climbing 0.3% for a second consecutive month. The job market has continued to improve this year, averaging monthly nonfarm payroll gains of 209,000 despite weak first-quarter growth of just 0.5%. Workforce participation is on the rise and the unemployment rate in March was 5%.

GBP

“The deterioration in April pushes the surveys into territory which has in the past seen the Bank of England start to worry about the need to revive growth”

- Markit

Britain's services sector faced its worst month of growth in more than three years in April, indicating a further slowdown in total GDP growth in the short term ahead of the EU referendum. The Markit/CIPS PMI measure of business activity in Britain's services sector, which accounts for 79% of the UK’s GDP, dropped further to 52.3 last month, reaching the lowest level since February 2013, down from 53.7 recorded in March, and below the estimate of 53.5.

The UK economy expanded by 0.4% in the first three months of the year, compared with the 0.6% growth in the final quarter of 2015. Recent surveys for the manufacturing and construction sectors for April suggested growth has since continued to slow, as businesses and consumers hold back amid concerns over the outcome of the referendum on June 23. The UK manufacturing sector encountered a surprise contraction in April that reflected in the PMI, as it entered negative territory for the first time in 4 years, plummeting under the 50 point mark to show 49.2 points. At the same time the UK's construction output rose at the slowest pace in nearly three years in April, with the PMI gauge of business activity within Britain's construction sector falling to 52 last month from 54.2 in March.

CAD

“ The Bank of Canada projects growth of 2.8% during the first quarter of the year, but warns that the Q1 boost is likely temporary, with much softer gains estimated for the second quarter”

- Brown Brothers Harriman & Co

Canada’s building permits declined in March due to fewer planned projects in western Alberta, particularly within the commercial sector. According to Statistics Canada, the value of building permits issued by municipalities in March plunged 7% to $6.9 billion. The drop followed a revised 15.3% surge in February. The data was worse than the 4.4% decrease predicted by economists. The value of permits issued in Alberta, dramatically hit by a plunge in crude prices, dived by 41.3%. This followed a 43.3% surge in February on the back of a big commercial project in the city of Edmonton.

Canada's exports fell sharply in March and the country's trade deficit with the rest of the world widened to a record level, fuelling doubts on the strength of the recovery in the resource-reliant economy. Canada posted a record trade deficit of C$3.41 billion in March, Statistics Canada reported, whereas expectations were for a smaller C$1.4 billion trade deficit. Exports dropped 4.8% following a dramatic 6.6% decline in the preceding month. In the meantime, imports fell 2.4% to C$44.4 billion in March, with volumes edging down 0.3% and prices declining 2.1%. The Bank of Canada projects growth of 2.8% during the first quarter of the year, but warns that the Q1 boost is likely temporary, with much softer gains estimated for the second quarter.

AUD

“The substantial exchange rate depreciation over recent years is expected to continue to place some upward pressure on inflation for a time”

- Reserve Bank of Australia

The Reserve Bank of Australia revised sharply downwards its inflation forecasts after slashing interest rates just days earlier due to weak first-quarter inflation data. Nevertheless, the central bank said that the Australian Dollar’s sharp depreciation over the last few years is expected to continue to put upward pressure on prices. The central bank cut the official cash rate by 25 basis points to 1.75%, after keeping rates on hold for a year. The decision came after the Australian Bureau of Statistics released quarterly CPI data, showing headline inflation plunged from 1.7% in the final quarter of 2015 to 1.3% last quarter. Australia's weak inflation environment could see the RBA taking interest rates even lower if the central bank’s weak underlying CPI outlook materializes.

The RBA downgraded its inflation forecasts, from expecting underlying inflation to remain within the target range, albeit at the lower end until the fourth quarter of 2016, to now anticipating 1-2% underlying CPI inflation for the year ending December 2016, and 1.5-2.5% inflation for the rest of the forecast period. While the RBA's inflation forecasts were significantly lower than the previous estimated, the bank's economic growth outlook was largely unchanged. In the short term, the RBA predicts slightly stronger growth of around 3%, but left its longer-term GDP forecasts intact at 2.5-3.5%.

 

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