Today’s Highlights


  • Markets just starting after UK and US holiday

  • US GDP data is week’s highlight

  • Commodity linked currencies on the back foot

FX Market Overview


I hope the British Readers had a great long weekend; we all seem to have had some good weather. I hope our US readers had a good break for Memorial Day. I saw some very moving tributes to fallen soldiers on various social media sites. There is a campaign in the UK urging people to lay flowers at war memorials now even though that is traditionally something that is only done on Armistice Day. This is in reaction to the barbaric murder of Drummer Rigby and to show support for service personnel everywhere. I was amazed at how many bouquets and single flowers had been laid at my local war memorial when I visited on Saturday. The word is getting out and the support is manifest.

The markets carried on even as we in the UK and US rested but the general mood hasn’t changed from last week. There is still a great deal of nervousness over whether the US recovery is fully established or whether the mixed data is likely to continue. There is still a concern that the US Federal Reserve is likely to start tapering off its monetary expansion policies but that is hard to assess when almost every Federal Reserve speaker has a different opinion on the matter. There is nervousness over the Japanese inflationary measures which are weakening the Yen and giving Japanese exporters a material advantage. On the UK side of things, traders are just plain nervous about the state of the British economy.


We may get some of the answers to some of those questions this week. It starts today with the US consumer confidence report which, if the commentators are right, will show a sharp upturn in the mood amongst American consumers. The lagging sectors as far as the Federal Reserve is concerned, have been housing and consumer figures as well as employment stats but we are starting to see growth in most of these sectors in recent data so that may well accelerate the Fed’s plans to reduce monetary stimulus. That would undoubtedly strengthen the US Dollar. More importantly, on Thursday we get the latest update on US economic growth for the 1st quarter of the year and that is forecast to confirm 2.5% growth; up from just 0.4% in the last quarter of 2012. If the figure is there or there about and if Friday’s personal consumption and spending data is even remotely positive, we can expect further USD strength. $1.50 against the Pound and $1.27 against the Euro will start to look vulnerable if all of that is correctly forecast.


This isn’t a big week for UK data but we get a fair smattering of retail and consumer data. Retail is covered by the CBI survey, mortgage lending will give us a view of the housing market and consumer confidence will be measures and reported as a survey on Thursday night. It’s not earth shatteringly exciting but it will keep traders busy.


The Australian Dollar remains at the weaker end of its recent ranges. There are many comments around the market that express relief that the Aussie Dollar appears to be reacting to the fundamentals of lower Australian interest rates, softening commodity markets & prices and slowing growth in Australia’s major export market, China. The week ahead should bring an improvement in Australian Building approvals but we are expecting consumer credit to have fallen so beware of volatility in the Australian Dollar.


For the NZ Dollar, this week’s report from the Fonterra dairy co-operative will be very interesting. It always has a significant influence on business confidence in New Zealand and, with the Kiwi Dollar weakening at last; a poor report could accelerate that decline.
Tomorrow marks the last Bank of Canada meeting that will be chaired by Mark Carney. I am sure Mr Carney would have preferred to have left the Canadian economy in better shape and the Canadian Dollar is on the back foot as well. That has something to do with the market perception of the policies of the new man in Charge, Governor Poloz is expected to maintain a weak Canadian Dollar policy and traders are preparing for that expectation.
Away from the markets, but of interest to anyone planning to move to Australia; your chosen destination has been ranked as the happiest amongst the developed world. This is the third year in a row that the Organization for Economic Cooperation and Development has ranked Australia in this way in their Better Life Index. Well done Aussie’s but it does raise another question. Which is the happiest ‘undeveloped’ country because, having witnessed all the hassles that development brings, that is probably the place we all really want to live. 


Quote


A reporter yelling out to Mohandas Gandhi, “What do you think of Western civilization?”
Gandhi “I think it would be a good idea.”