The Weekly Wrap – The EUR and Yen Come Out on Top as the Equity Markets Hit Corrective Territory

The Stats

It was a relatively busy week on the economic calendar, in the week ending 28th February.

A total of 56 stats were monitored, following the 72 stats in the week prior.

Of the 56 stats,  26 came in ahead forecasts, with 21 economic indicators coming up short of forecast. 9 stats were in line with forecasts in the week.

Looking at the numbers, 25 of the stats reflected an upward trend from previous figures. Of the remaining 31, 25 stats reflected a deterioration from previous.

For the Greenback, it was a particularly bearish week, as the markets reversed bets that the U.S economy would be unscathed from the spread of the coronavirus.

Not only did economic data continue to disappoint, but the markets also raised the probability of multiple rate cuts by the FED.

When gold takes a tumble as investors look for liquidity to meet margin calls, it’s never a good thing…

The Dollar Spot Index fell by 1.21% to end the week at 98.132.

Out of the U.S

It was a quiet first half of the week, with economic data limited to February consumer confidence figures.

A slight uptick in consumer confidence had a muted impact on the dollar on Tuesday.

Market risk aversion and updates from the U.S on the coronavirus pinned the Dollar back early in the week.

In the 2nd half of the week, durable goods orders on Thursday also failed to impress ahead of a busy Friday.

While core durable goods orders rose by 0.90% in January, durable goods orders fell by 0.2%, sending mixed signals to the market.

At the end of the week, the annual rate of inflation continued to fall short of the FED’s 2% objective.

Personal spending rose by just 0.2% in January, which was softer than a 0.4% rise in December.

Chicago PMI numbers were somewhat better than anticipated, however, with the PMI rising from 42.9 to 49.0.

The February numbers suggested that next week’s ISM numbers may not be as dire as the Markit PMI numbers.

It wasn’t enough to support the U.S equity markets or the Dollar, however.

Housing sector numbers and 2nd estimate GDP numbers for the 4th quarter had a muted impact in the week.

In the equity markets, the Dow slumped by 12.36%, with the S&P500 and NASDAQ tumbling by 11.49% and by 10.54% respectively.

Out of the UK

It was a particularly quiet week on the economic calendar.

There were no material stats to provide the Pound with direction.

The lack of stats left the Pound in the hands of Brexit chatter as the EU and Britain prepare to return to the negotiating table.

A visit to $1.30 levels early in the week was brief, with the British Prime Minister spooking the markets once more.

Johnson spoke on Thursday, stating that Britain would walk away from negotiations should there be a lack of progress by the end of June.

With so much to iron out and the 2-sides worlds apart, hopes of having a framework in place by June are slim…

In the week, the Pound fell by 1.09% to $1.2823, with the FTSE100 ending the week down by 11.12%.

Out of the Eurozone

It was a relatively quiet start to the week economic data front.

Germany was in focus, with February IFO Business Climate Index figures and 2nd estimate GDP numbers in focus.

On the positive side for the EUR was a slight pickup in the Business Climate Index. This came off the back of a rise in optimism, as the current assessment index eased back.

Ultimately, however, March numbers will give a better indication of whether the coronavirus has affected business sentiment.

With GDP numbers in line with 1st estimates, the focus then shifted to a busy Friday.

Key stats included French consumer spending and German unemployment numbers.

While Germany’s unemployment rate held steady, French consumer spending took a hit in January. The slide came ahead of the coronavirus news, which suggests that a further pullback in spending could be on the cards.

The stats failed to influence, however, as the markets punished the Dollar through much of the week.

Prelim inflation figures out of Spain and France, French GDP numbers and finalized consumer confidence figures out of the Eurozone also failed to move the dial…

On the monetary policy front, ECB President Lagarde spoke late in the week. She was of the view that the virus had yet to impact inflation to the point where the ECB needs to step in…

That is in stark contrast to the outlook towards FED monetary policy…

For the week, the EUR rose by 1.65% to $1.1026.

For the European major indexes, it was a particularly bearish week. The DAX30 tumbled by 12.44%, with the CAC40 and the EuroStoxx600 ending the week down by 11.94% and 12.25% respectively.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 28th February, the Aussie Dollar slid by 1.69% to $0.6515, with the Kiwi Dollar down by 1.62% to $0.6246.

For the Aussie Dollar

It was a relatively quiet week for the Aussie Dollar on the economic data front.

Key stats included 4th quarter construction work done and private new CAPEX figures on Wednesday and Thursday.

Both sets of figures disappointed, though a 2.8% slide in new CAPEX in the 4th quarter was more alarming.

RBA monetary policy has not only been in favor of consumer spending but also business investment. The slide suggests a lack of confidence and raised the prospects of a near-term rate cut.

On Friday, the private sector credit figure also failed to impress, with total credit rising by just 0.3% month-on-month.

With the numbers skewed to the negative, risk aversion added to the downside in the week.

Negative sentiment towards the economic outlook led to a slide in commodities and commodity currencies.

For the markets, uncertainly over when the spread of the coronavirus will abate also influenced.

For the Kiwi Dollar

It was a relatively quiet start to the week on the economic colander.

4th quarter retail sales figures failed to impress at the start of the week, with sales rising by 0.7%. In the 3rd quarter, retail sales had risen by 1.7%.

Later in the week, trade data and business confidence figures delivered mixed results that added pressure on the Kiwi.

While trade exports to China rose further, January’s trade was not impacted by China’s shut down.

Business confidence figures, however, suggested some doom and gloom ahead.

With exports to China accounting for 27% of total New Zealand exports in January, it could be quite dire reading next month…

For the Loonie

It was a busy week on the economic calendar. Key stats included wholesale sales figures on Monday and RMPI and GDP numbers on Friday.

A rise in wholesale sales in December failed to provide support at the start of the week, as crude oil prices got hammered.

Market fears of a marked slowdown in the global economy, stemming from the spread of the coronavirus, weighed.

At the end of the week, with the Loonie already under the cosh, GDP numbers also failed to support.

While the economy fared better in December, there was a marked slowdown in the 4th quarter. When considering the economic disruption anticipated in the 1st quarter and beyond, it doesn’t look good.

RMPI numbers also failed to impress, with the RMPI falling by 2.2% in January, reversing most of a 2.7% rise in December.

With the BoC in action next week, the chances of a rate cut certainly jumped in the week…

The Loonie slid by 1.38% to end the week at C$1.3407 against the Greenback.

For the Japanese Yen

It was a relatively quiet week on the data front.

The markets had to wait until Friday for key stats that had little to no influence on the Japanese Yen.

For the Government, the impact of the coronavirus on consumer spending is a blow following last year’s sales tax hike. That suggests that government support is likely to come.

In the meantime, however, retail sales fell by 0.4% in January, following a 2.6% slide in December.

The annual rate of core inflation also eased, with the Ku-area seeing core inflation easing from 0.7% to 0.5% in February.

With the jobs/applications ratio falling from 1.57 to 1.49, the only bright data set was industrial production.

A 0.8% rise in production in January was of little consolation, however, when considering the anticipated drop in demand.

Risk aversion ultimately drove demand for the Yen in the week, with concerns over the U.S economy restoring the Yen’s position as the “go-to” currency.

The Japanese Yen surged by 3.33% to end the week at ¥107.89 against the U.S Dollar. Risk aversion in the week weighed heavily on the Nikkei, which slumped by 9.59%, leaving the index down by 8.89% for February.

Out of China

There were no material stats to provide direction ahead of private sector PMIs on the weekend.

A lack of stats left updates on the coronavirus to provide direction that was ultimately positive for the Yuan.

In contrast, the sell-off across the global stock markets weighed on the CSI300 and Hang Seng, though they did fare better than the pack.

The CSI300 fell by 5.05%, with the Hang Seng falling by 4.32% in the week.

In the week ending 28th February, the Yuan rose by 0.50% to CNY6.9920 against the Greenback.

The Dollar Takes a Hit as Economic Data Continues to Play 2nd Fiddle to the Coronavirus

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Japanese Yen and Aussie Dollar were in action.

For the Japanese Yen

Economic data included, February inflation figures and January’s job to applications ratio, industrial production, and retail sales figures.

According to consumer price figures released by the Ministry of Internal Affairs and Communication. The Ku-area of Tokyo saw the annual core rate of inflation ease from 0.7% to 0.5%, falling beyond a forecasted 0.6%.

  • Prices for Education slid by 6%, with prices for fuel, light and water charges falling by 2.8%.
  • There were solid increases in prices for clothes & footwear (+2.4%) and furniture and household utensils (+2.0%), however.
  • Prices for medical care (+1.3%), transportation and communication (+1.0%), culture and recreation (+0.9%) also provided support.
  • Prices for housing rose by just 0.5%, however.

With inflationary pressures easing in February, jobs available also eased, as the jobs/applications ratio fell from 1.57 to 1.49. The ratio last stood at sub-1.50 levels back in May 2017, when the ratio had also stood at 1.49.

The Japanese Yen moved from ¥109.638 to ¥109.616 upon release of the figures that preceded the industrial production and retail sales figures.

Retail Sales and Industrial Production

According to the Ministry of Economy, Trade, and Industry, retail sales fell by 0.4% in January, year-on-year, following a 2.6% slide in December. Economists had forecasted a 1.1% decline.

Industrial production increased by 0.8% in January, according to prelim figures, following a 1.2% rise in December. Economists had forecast a 0.2% rise.

According to the Ministry of Economy, Trade, and Industry,

Industries that mainly contributed to the increase were:

  • Motor vehicles, transport equipment (excl. motor vehicles), and other manufacturing.

Industries that mainly contributed to a decrease were

  • Production machinery, general-purpose and business orientated machinery, and electrical machinery, and information, and communication electronics equipment.

The Japanese Yen moved from ¥109.652 to ¥109.571 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.06% to ¥109.52 against the U.S Dollar.

For the Aussie Dollar

According to figures released by RBA, total credit increased by 0.3%, month-on-month, in January. In December, credit had risen by 0.2%.

  • Business credit jumped by 0.5%, following a 0.2% rise in December, supporting the marginal uptick.
  • Personal credit fell at a sharper pace, however. Following a 0.4% decline in December, personal credit fell by 0.6% in January.
  • Housing credit rose by 0.3%, following a 0.3% increase in December.

The Aussie Dollar moved from $0.65811 to $0.65832 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.20% to $0.6582.

Elsewhere

At the time of writing, the Kiwi Dollar was up by 0.03% to $0.6309.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include German unemployment and French consumer spending figures.

Barring material deviation from 1st estimate numbers, 2nd estimate GDP figures out of France will likely have a muted impact on the EUR.

Later in the European session, prelim Italian and German inflation figures for February will also likely have a muted impact on the EUR.

Outside of the numbers expect news updates on the coronavirus to also provide direction. We’ve seen the Dollar take a hit as the coronavirus spreads across the U.S, leaving the U.S economy at risk of a slowdown.

At the time of writing, the EUR was down by 0.03% at $1.0998.

For the Pound

It’s another quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

We can expect the Pound to be under pressure as the markets shift attention to negotiations that commence next week.

At the time of writing, the Pound was up by 0.04% to $1.2892.

Across the Pond

It’s a busy day ahead on the U.S economic calendar.

Key stats include Chicago PMI, personal spending, inflation and trade data. With the markets now beginning to expect monetary policy easing, today’s stats will have a material influence.

We expect finalized consumer sentiment figures for February to have a muted impact on the day.

Outside of the numbers, news updates on the coronavirus will also influence.

The Dollar Spot Index slid by 0.49% to 98.508 on Thursday.

For the Loonie

It’s a busy day ahead on the economic calendar, with key stats including GDP and RMPI numbers.

With the Bank of Canada in action next week, any soft numbers and expect the markets to price in a rate cut.

The BoC had previously talked of a willingness to make a move should economic indicators support a cut. With the coronavirus spreading globally and weighing on global trade and consumption, expect the numbers to do the talking.

The Loonie was down by 0.02% at C$1.3393 against the U.S Dollar, at the time of writing.

AUD/USD and NZD/USD Fundamental Daily Forecast – Weighed Down by Lower Chinese Growth Expectations

The Australian and New Zealand Dollars are trading higher on Thursday on light-profit-taking and end-of-the-month position squaring. Mixed, but mostly lower trading in Asia Pacific stock markets could also be contributing to the slight rebound from Wednesday’s steep losses.

Nonetheless, the rapid global spread of the coronavirus kept investors on edge as they continued to shed risky commodity and trade-based currencies while seeking shelter in safe-haven government bonds.

At 08:09 GMT, the AUD/USD is trading .6562, up 0.0017 or +0.26% and the NZD/USD is at .6305, up 0.0016 or +0.26%.

Aussie, Kiwi Affected by Expectations of Lower Chinese Growth

The virus has driven an enormous flight of assets out of Asia as investors try to isolate themselves from both the outbreak itself and the cost of what has now been more than a month of paralysis in the world’s second-biggest economy, Reuters said.

New Zealand’s government said on Thursday it might need to pump money into its economy, where China accounts for about a quarter of exports, should the fallout cause a global recession.

Capital Economics now expects Chinese growth to contract this year.

“The economic risks from extended disruption are non-linear,” Capital’s chief Asia economist and its senior China economist, Mark Williams and Julian Evans-Pritchard, said in a note.

“The longer it continues, the more likely it is that some firms won’t be able to pay workers, and will have to either cut pay, lay people off or shut down altogether.”

New Zealand Finance Minister Warns of ‘Short, Sharp’ Economic Hit

In a speech to the Auckland Chamber of Commerce on Thursday, New Zealand Finance Minister Grant Robertson warned that New Zealand will experience a “short, sharp” economic hit.

“We meet today in the shadow of one of the biggest uncertainties that the global economy has seen in recent times,” he told those gathered.

He warned that the virus outbreak would have a “serious impact on the New Zealand economy in the short term”.

He stressed this point numerous times during his speech, making it clear that the economy would “rebound”, the New Zealand Herald reported.

Australian 10-Year Bond Yields Hit Record Low, CapEx Drops

In other news, Australia’s 10-year bond yield fell to a new record low of 0.845 percent after Australia’s Prime Minister Scott Morrison said risk of global pandemic is very much upon us, while urging the need to take action.

Additionally, Australia private capital expenditure dropped -2.8% in Q4, much worse than expectation of 0.5% increase. In seasonally adjusted terms, building and structures dropped -5.9%. Mining dropped -2.7%. Equipment, plant and machinery rose 0.8%. Manufacturing dropped -10.1% and other selected industries fell -1.9%.

The Mid-Week Wrap – Asian Markets and Stocks

The last week of the month usually is pretty quiet. Is it also the case this week?

For the U.S Dollar

It was a quiet start to the week on the economic data front. The markets needed until Tuesday for consumer confidence figures that failed to impress.

We saw the Dollar under pressure at the start of the week, with last week’s PMI numbers raising the chances of a FED rate hike in the 1st half of the year.

The shift in sentiment saw demand for the Dollar ease early in the week. Following FED Chair Powell’s testimony, the markets had anticipated a resilient U.S economy. Recent economic indicators suggested otherwise, with the U.S private sector contracting in February.

Throw in the rising number of cases of the coronavirus and the CDC’s outlook and the U.S economy also faces headwinds.

Through the remainder of the week, inflation and personal spending figures on Friday will garner plenty of attention. Personal spending figures will be of particular interest as it will indicate any consumer concerns over the virus.

Ahead of the numbers, 2nd estimate GDP numbers for the 4th quarter are due out along with durable goods orders on Thursday.

Expect the durable goods orders to have a greater impact, as the markets look for coronavirus impact on demand.

For the EUR

It was also a relatively quiet start to the week. Germany’s business confidence 2nd estimate GDP numbers were in focus.

While 2nd estimate GDP figures were in line with 1st estimate, there was an improvement in business sentiment.

February’s IFO survey came ahead of the spread of the coronavirus through Europe, however, limiting any upside for the EUR.

Over the remainder of the week, the focus will shift to consumer spending and 4th quarter GDP numbers out of France. There are also unemployment numbers out of Germany to also consider.

For now, we’ve seen the EUR find support as the sentiment shifts towards the U.S economy. Ultimately, however, the Eurozone economy remains more at risk to a marked slowdown that that of the U.S, which suggests the upside to be limited.

A more material spread of the virus across the U.S, however, would alter that outlook.

For the Pound

It’s a particularly quiet week on the economic data front and there have been no material stats to provide support.

We saw the Pound bounce back to $1.30 levels on Tuesday following the EU member states desire to form an ambitious trade agreement with Britain.

That comes with strings attached, however, which Britain is unwilling to agree to.

On Thursday, the British government is due to announce its starting terms, which will give an idea of just how far apart the 2-sides are.

Expect reaction to influence the Pound over the remainder of the week.

Stocks go down due to the virus in an environment of no macroeconomic data releases. In the meantime, how have the commodity currencies reacted to the recent developments in the markets?

We saw the commodity currencies fair better in the early part of the week, in spite of the risk aversion.

This was largely due to the shift in sentiment towards the U.S economy and monetary policy

That being said, it’s still been a bearish week for the commodity currencies.

For the Aussie Dollar, new CAPEX figures for the 4th quarter failed to impress this morning.

With business investment on the slide, any slide in consumer spending would add further pressure on the RBA to make a move.

In the last meeting, the RBA had raised some concerns over the likely impact of the coronavirus on the global economy. Since then, we can expect that concern to have spiked as the virus reaches new countries.

It certainly looks set for a particularly dovish RBA next week, which should limit any upside for the Aussie Dollar.

Things are not much better for the Kiwi Dollar.

Retail sales rose by just 0.7% in the 4th quarter, following a 1.7% rise in the 3rd, with the numbers coming ahead of key stats on Thursday.

While January trade data delivered support, with exports to China on the rise once more in January, it was business confidence that weighed.

The trade figures failed to capture the effects of the extended Chinese New Year and quarantines across the country. February’s figures are expected to be quite dire, however, if business confidence numbers are anything to go by.

That leaves the Kiwi under immense pressure, with economic disruption expected to continue beyond the 1st quarter.

A slight decline in all of the commodity currency charts. Meanwhile, how have the major Asian countries fared during this period? I assume they have been hit the most by the coronavirus.

For the Japanese Yen

We saw the Japanese Yen find renewed interest this week, at the expense of the Greenback. With risk aversion continuing to plague the markets, the rise in the number of cases in the U.S and weak data provided the upside.

The markets had previously moved away from the Yen over concerns that the region would be harder hit by the virus.

This is likely to be the case, however, which should limit any return to ¥107 – 108 levels against the Greenback.

On the economic data front, retail sales and industrial production figures due out on Friday will unlikely reflect the effects of the virus.

Dire numbers, however, would suggest that the BoJ will need to make a move of some sort…

For the rest of the Asian Majors

Unsurprisingly, the rest of the Asian majors have struggled in the week.

We’ve seen the Taiwanese Dollar, Singapore Dollar, Korean Won, and Chinese Yuan struggle as disruption to trade is expected to hurt the respective economies.

Monetary and fiscal policy support has been delivered by a number of central banks in the region.

Uncertainty over the time frame involved, however, and how bad it could get continues to pressure the majors. This will likely continue near-term or at least until the pace of the global spread abates.

Will U.S Durable Goods Orders Give the Markets More Angst as the Number of U.S Cases Rise?

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Kiwi Dollar and Aussie Dollar were in action.

For the Kiwi Dollar

New Zealand’s trade deficit narrowed from NZ$4,460m to NZ$3,870 year-on-year in January. Month-on-month, the trade balance fell from an NZ$384m surplus to an NZ$340m deficit.

According to NZ Stats,

  • Total exports rose by NZ$382m (8.8%) from January 2019 to hit NZ$4.7bn.
    • Exports to China jumped by NZ$302m (31%) to NZ$1.3bn in January, compared with January 2019.
    • A jump in dairy, meat, and log exports led the way.
    • The rise in exports to China meant that China accounted for 27% of total exports, all of which came before the extended CNY holidays and quarantines across the country.
  • Total imports fell by NZ$212m (4.0%) to NZ$5.1bn in January 2020.
    • A slide in the import of vehicles, parts, and accessories (NZ$116m) weighed on imports. Motor car imports were the main driver.
    • Imports from China stood at NZ$1.1bn in January 2020, which accounted for 22% of total monthly imports. On an annual basis, 20% of total imports were from China.

The New Zealand Dollar moved from $0.62898 to $0.62900 upon release of the figures that preceded January business confidence figures.

In January, the ANZ Business Confidence Index fell from -13.2 to -19.4. Economists had forecast a rise to -7.9.

According to the latest ANZ Report,

  • A net 12% of firms expect stronger activity ahead for their own business, falling by 5.
  • Agriculture sector own activity tumbled from +16 to -30, with manufacturing own activity down from +24 to +4.
  • Expected profitability, investment and employment intentions were all in decline.
  • The downward trend was attributed to the spread of the coronavirus. ANZ noted that survey responses received after the COVID-19 outbreak hit the headlines were more negative. These accounted for one-third of the total respondents.
  • On the bright side, the construction sector saw a rosier outlook, with retail sector pricing intentions jumping to the highest level since 2008.

The Kiwi Dollar moved from $0.62866 to $0.62900 upon release of the numbers. At the time of writing, the Kiwi Dollar down by 0.05% to $0.6290.

For the Aussie Dollar

Private new capital expenditure slid by 2.8% in the 4th quarter, following on from a revised 0.4% decline in the 3rd quarter. Economists had forecast a 0.4% rise.

According to the ABS,

  • Building and structures saw a 5.9% slide, while new CAPEX expenditure on equipment, plant, and machinery rose by 0.8%.
  • In the 3rd quarter, investments in building and structures had risen by 2.5%, while expenditure on equipment, plant, and machinery had fallen by 3.6%.

The Aussie Dollar moved from $0.65511 to $0.65535 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.18% to $0.6556.

While the Aussie Dollar was up in the early hours, the slump in new CAPEX expenditure gives the RBA further reason to cut rates. The low-interest-rate environment was not only meant to support consumers but also fuel business spending.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.16% to ¥110.25 against the U.S Dollar.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include prelim February inflation figures out of Spain and finalized Eurozone consumer confidence figures.

Barring a material pullback in inflation, however, we would expect the numbers to have a muted impact on the EUR.

Expect any revision to Eurozone consumer confidence figures to influence, however, as the markets search for sentiment towards the spread of the coronavirus.

Outside of the numbers, expect market risk sentiment to continue to provide direction. For the EUR, early support kicked in as the markets reacted to news of a rise in new coronavirus cases in the U.S. The upward swing has come as the markets reverse bets on the U.S economy being unscathed from the spread of the virus.

At the time of writing, the EUR was up by 0.26% at $1.0909.

For the Pound

It’s also a quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

While there are no stats to consider, the British Government is due to release its terms for trade negotiations with the EU.

It will all come down to how far apart the 2-sides are from the get-go and how the EU responds and Boris Johnson and David Foster react in return.

Expectations are for a difficult road ahead, which should peg the Pound back at $1.29 levels and bring $1.28 levels back into play.

On the monetary policy front, BoE MPC member Cunliffe is scheduled to speak in the early afternoon. Following Cunliffe’s concerns over the negative effects of prolonged monetary policy easing, expect any dovish chatter to weigh on the Pound.

We’ve yet to hear of central banks wanting to step in as the coronavirus continues to spread. This may well change in the coming weeks…

At the time of writing, the Pound was up by 0.12% to $1.2921.

Across the Pond

It’s a relatively busy day ahead on the U.S economic calendar. January durable goods orders and 2nd estimate GDP numbers for the 4th quarter are due out.

Barring deviation from 1st estimate numbers, expect the core durable goods and durable goods orders to have the greatest impact.

Following last week’s particularly disappointing PMI numbers, any slide in orders will pressure the Greenback further.

Initial weekly jobless claims and pending home sales figures for January are also due out. We will also expect the numbers to have a muted impact on the Dollar, however.

Outside of the numbers, market risk sentiment will continue to influence.

At the time of writing, the Dollar Spot Index was down by 0.06% to 98.939.

For the Loonie

It’s a quiet day ahead on the economic calendar, with key stats limited to 4th quarter current account figures out of Canada.

We can expect the numbers to have a muted impact on the Loonie, however.

Focus through the day will be on the economic outlook and demand for crude oil, which remains Loonie negative.

The Loonie was down by 0.06% at C$1.3341 against the U.S Dollar, at the time of writing.

AUD/USD and NZD/USD Fundamental Daily Forecast – Pressured as Downside Risks to Economic Growth Increase

The Australian Dollar hit a multi-year low on Wednesday and the New Zealand Dollar fell in sympathy with its neighbor amid coronavirus fears and the release of disappointing Australian construction data.

The higher-yielding Aussie and Kiwi have been pressured for weeks by expectations that the coronavirus’ impact on China’s economy will spread to their respective economies, forcing their central banks to cut interest rates sooner than expected.

At 08:42 GMT, the AUD/USD is trading .6577, down 0.0024 or -0.37% and the NZD/USD is at .6310, down 0.0012 or -0.19%.

In other news, the Australian Bureau of Statistics showed the value of construction work done in the December quarter of 2019 declined, putting further pressure on the Reserve Bank of Australia to take aggressive action to spur economic growth.

Coronavirus Fears Capping Gains, Driving Selling Pressure

The Australian Dollar reached an 11-year low versus the greenback on Wednesday as downside risks to global growth from the spread of the coronavirus continued to grow.

“With containment measures in South Korea and Italy, the global economic impact can be expected to widen and this can only be bad news for commodity currencies” like the Aussie and the New Zealand dollar, said Jason Wong, a senior markets strategist at Bank of New Zealand in Wellington. “Further downside pressure looks inevitable.”

Australian Construction Spending Slides to 3-year Low

Australian construction spending slid to its lowest in almost three years last quarter as a deepening downturn in home building spread to other sectors and posed a downside risk to growth across the economy.

The weakness in housing is also unlikely to turn anytime soon as the industry wrestles with an overabundance of new apartment blocks begun when the market was booming.

Wednesday’s figures from the Australian Bureau of Statistics showed inflation-adjusted construction fell 3.8 percent in the June quarter, from the previous quarter, to stand at A$48.8 billion (US$45.75 billion). That was the lowest amount since late 2016 and off 11.1 percent from a year earlier.

The quarterly drop was far steeper than the 1 percent fall forecast by analysts and suggested gross domestic product (GDP) might also miss estimates, perhaps badly. The data is due on September 4.

“With construction representing around 13 percent of the economy this result will dent GDP, potentially in the order of 0.4 percentage points,” said Westpac senior economist Andrew Hanlan. “The housing downturn still has further to go and will weigh on conditions throughout 2019 and into 2020.”

Daily Forecast

Continue to look for more downside pressure on the Australian Dollar amid fears the impact of the coronavirus and the bushfires will shrink the Australian economy in the first three months of the year.

Economists at ANZ estimate the impact of the coronavirus will slash 0.5 of a percentage point off March quarter gross domestic product and a smaller hit from the bushfires.

The bank forecasts the economy to contract 0.1 percent in the first quarter, before recovering later in the year.

Risk Aversion Likely to Linger, with Economic Data on the Lighter Side Today

Earlier in the Day:

It was another quiet day on the Asian economic calendar this morning. The Aussie Dollar was in action, with housing sector data in focus.

For the Aussie Dollar

Construction work done slid by 3% in the 4th quarter, following a 0.4% fall in the 3rd quarter. Economists had forecast a decline of 1%.

According to the ABS,

  • Total building work done fell by 4.1%, while total engineering work down fell by 1.5%

The Aussie Dollar moved from $0.65979 to $0.65989 upon release of the figures. At the time of writing, the Aussie Dollar was down by 0.17% to $0.6593.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.01% to ¥110.21 against the U.S Dollar, with the Kiwi Dollar down by 0.14% to $0.6312.

Outside of the numbers, the markets reacted to the overnight slide in the U.S majors and news updates on the spread of the coronavirus.

The risk aversion weighed on the Aussie Dollar and Kiwi Dollar and the Asian equity markets, with the Nikkei down by 1.96% at the time of writing. The ASX200 led the way down, however, tumbling by 2.12%.

The Day Ahead:

For the EUR

It’s another quiet day ahead on the economic calendar. Key stats include French jobseeker figures. Barring a marked increase, the numbers are unlikely to have a material impact on the EUR, however.

Outside of the numbers, risk sentiment will continue to pressure the EUR. Economic disruption stemming from the spread of the coronavirus is expected to materially affect the Eurozone economy.

ECB President Lagarde, due to speak later today, could raise the prospects of further support. She may, however, also call on member states to deliver fiscal policy support. Such calls from the ECB have fallen on deaf ears until now.

At the time of writing, the EUR was down by 0.09% at $1.0872.

For the Pound

It’s also a quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

We saw the Pound find strong support on Tuesday as EU ministers talked of a substantial, ambitious and wide-ranging partnership with the UK.

With talks scheduled to commence next week, the British government is due to release its terms of negotiations tomorrow. The markets will get an idea of just how far apart the two sides are…

At the time of writing, the Pound was down by 0.02% to $1.3003.

Across the Pond

It’s a relatively quiet day ahead on the U.S economic calendar. January’s new home sales figures are due out later today.

With a lack of stats for the markets to consider, expect some Dollar sensitivity to today’s numbers. Mortgage rates and labor market conditions are all supportive of the housing sector. Any weakness in sales may test risk sentiment.

Ultimately, however, the Dollar will be wedged between sentiment towards monetary policy and safe-haven demand.

Last week’s private sector PMIs and the continued spread of the coronavirus has raised the probability of the FED cutting rates.

At the time of writing, the Dollar Spot Index was up by 0.07% to 99.035.

For the Loonie

It’s a quiet day ahead on the economic calendar, with no material stats due out of Canada to provide direction.

The lack of stats will continue to leave the Loonie in the hands of market risk appetite and crude oil prices.

A steadying of crude oil prices early in the day eased pressure on the Loonie.

The Loonie was down by 0.02% at C$1.3281 against the U.S Dollar, at the time of writing.

GDP Numbers and U.S Consumer Confidence Put the EUR and USD in Focus

Earlier in the Day:

It was a quiet day on the Asian economic calendar this morning, with no material stats to provide direction on the day.

The lack of stats left the markets to lick its wounds following Monday’s risk aversion.

For the Majors

At the time of writing, the Japanese Yen was down by 0.07% to ¥110.8 against the U.S Dollar. The Aussie Dollar was up by 0.18% to $0.6617, with the Kiwi Dollar was up by 0.13% to $0.6348.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead on the economic calendar. Key stats include Germany’s 2nd estimate GDP numbers for the 4th quarter.

Barring deviation from 1st estimates, however, the numbers are unlikely to have too much of an impact on the EUR.

Following Monday’s sell-off, support through the early part of the day will likely continue through to the U.S session.

Any slide in U.S consumer confidence and risk aversion could return later in the day, however, which would be EUR negative.

At the time of writing, the EUR was up by 0.11% at $1.0866.

For the Pound

It’s another quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

Risk sentiment will be the key driver on the day, with Brexit chatter also in focus. EU member states are due to deliver the finalized terms for trade negotiations.

Unrealistic demands would be Pound negative.

At the time of writing, the Pound was up by 0.11% to $1.2938.

Across the Pond

It’s a relatively quiet day ahead on the economic calendar. December house price and February consumer confidence figures are due out later today.

Expect consumer confidence figures to be the key driver. Following some disappointing private sector PMI numbers last week, weak consumer confidence figures would be another red flag.

Fears of a U.S recession had disappeared at the turn of the year. That could change should we see consumer confidence slump.

At the time of writing, the Dollar Spot Index was down by 0.15% to 99.214.

For the Loonie

It’s a quiet day ahead on the economic calendar, with no material stats due out of Canada to provide direction.

The lack of stats will leave the Loonie in the hands of market risk appetite and crude oil prices.

A steadying of crude oil prices early in the day eased pressure on the Loonie this morning.

The Loonie was up by 0.07% at C$1.3284 against the U.S Dollar, at the time of writing.

AUD/USD and NZD/USD Fundamental Daily Forecast – All Signs Pointing to Economic Weakness, Rate Cuts

The Australian and New Zealand Dollars are trading lower on Monday and in a position to resume the early sell-off from Friday that was temporarily interrupted by a short-covering rally that was fueled by weaker-than-expected U.S. economic data.

The selling pressure on the Aussie and Kiwi are likely being fueled by a sharp rise in coronavirus cases in South Korea, a major trading partner with Australia and New Zealand. In fact, economic weakness in China, Thailand, Vietnam and Indonesia is also weighing on prices.

At 07:51 GMT, the AUD/USD is trading .6592, down 0.0035 or -0.53% and the NZD/USD is at .6308, down 0.0044 or -0.69%.

Investors are essentially being spooked by the secondary infections that they’ve seen outside of China. “The sheer explosion of the rate in South Korea has been quite frightening … there’s a sobering realization that this could really impact hard and fast,” according to Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

Aussie and Kiwi investors are also fretting over the mounting economic toll from the virus, betting on more monetary policy action from central banks. The financial markets in Australia and New Zealand are beginning to signal more rate cuts later this year.

New Zealand Retail Trade Growth Slows in Q4

The volume of total retail sales in New Zealand rose a seasonally adjusted 0.7 percent in the last quarter of 2019, Statistics New Zealand said on Monday, easing from an upwardly revised 1.7 percent increase in the previous period. Traders were looking for an increase of 0.8 percent.

The total value of retail sales was up 1.1 percent on quarter or NZ$268 million. Additionally, nine of the 15 industries had higher sales volumes in the December 2019 quarter.

Year-on-year, retail trade went up 3.3 percent, following a 4.5 percent gain in the prior period.

In another report, Credit Card Spending came in at 3.7%, up from 3.5%.

New Zealand Extends Ban on China Arrivals; No Curbs Yet for Other Nations

New Zealand has extended for eight days a ban on arrivals from mainland China, Prime Minister Jacinda Ardern said on Monday, carrying into its fourth week an effort to block exposure to the coronavirus. But New Zealand has no plans for now to widen the ban to other countries, Ardern told a news conference, adding, “We continue to focus on the epicenter of outbreak.”

Ardern added that it was highly likely the virus would eventually arrive in New Zealand, although it has no confirmed infections.

Finance Minister Grant Robertson said the government would step in to assist businesses hit by the spread of the virus, if there is a long lasting shock to the economy or a global economic recession, but he did not expect one at the moment.

“If either of these scenarios play out it will be important for the government to play a role to invest in the economy to support New Zealanders and Kiwi businesses,” he added.

Daily Forecast

There are no major U.S. economic reports on Monday so the focus will be on investor demand for safe-haven assets. This means that money is likely to flow back into the U.S. Dollar after Friday’s counter-trend sell-off.

Expectations are that China’s economy will take a major hit during the first quarter so we expect weakness in the Australian and New Zealand economies. Both are major trading partners with China.

With a weaker economy comes calls for lower interest rates. This is making the Aussie and Kiwi less-desirable assets.

Coronavirus Updates Drive Demand for the Dollar as Riskier Assets Slide

Earlier in the Day:

It was a relatively quiet day on the Asian economic calendar this morning. The Kiwi Dollar was in action, with 4th quarter retail sales figures in focus.

Outside of the numbers, risk aversion plagued the markets once more as news updates on the spread of the coronavirus hit the wires.

For the Kiwi Dollar

Retail sales rose by 0.7% in the 4th quarter, following a 1.7% increase in the 3rd quarter.

According to NZ Stats,

  • Electronics, including appliances mobile phones, and computers had the largest sales volume increase for a 3rd consecutive quarter. Sales volume rose by 4.3% following a 4.4% increase in the 3rd
  • 9 of 15 retail industries saw higher sales volumes in the 4th
  • Department stores had the largest fall in sales volume, with volume down by 3.8%. In the 3rd quarter, volumes had increased by 3.8%.

At the time of writing, the Kiwi Dollar was down by 0.46% to $0.6320.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.04% to ¥111.57 against the U.S Dollar, with the Aussie Dollar down by 0.32% to $0.6606.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include Germany’s IFO Business Climate Index figures for February.

Following better than expected consumer confidence figures last week, any improvement would provide the EUR with much-needed support.

The stats will need to be impressive, however, to offset the early slide stemming from news updates on the coronavirus.

At the time of writing, the EUR was down by 0.23% at $1.0822.

For the Pound

It’s a quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

The lack of stats will leave chatter on Brexit and market risk appetite to influence.

Strong demand for the Dollar weighed early in the day as the spread of the coronavirus in South Korea continued to hit risk appetite.

At the time of writing, the Pound was down by 0.21% to $1.2937.

Across the Pond

It’s a quiet day ahead on the economic calendar, with no material stats to provide direction for the Dollar.

Following Friday’s pullback that came in response to the PMI numbers, the Dollar was on the move early this morning.

Risk aversion continued to drive demand for the Dollar, as Korea announced that its disease alert level was hoisted to its highest level.

At the time of writing, the Dollar Spot Index was up by 0.29% to 99.5470.

For the Loonie

It’s a relatively quiet day ahead on the economic calendar, with December wholesale sales figures due out of Canada.

While the stats will garner some interest, we don’t expect any long-lasting influence on the Loonie.

News of a further spread of the coronavirus through the weekend weighed on crude oil prices at the start of the week. Demand is expected to take a bigger hit than had been initially anticipated, which led to the early pullback, leading to the early slide in the Loonie.

The Loonie was down by 0.30% at C$1.3265 against the U.S Dollar, at the time of writing.

AUD/USD and NZD/USD Fundamental Weekly Forecast – Pressured by Growing Fears of Virus’ Economic Fallout

The Australian and New Zealand Dollars finished lower last week as concerns over the economic impact of the coronavirus and future moves by the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) dominated the trade.

Most of the week, the Aussie and Kiwi were pressured by a stronger U.S. Dollar as traders flocked to the greenback for safe-haven protection. On Friday, however, both currencies reversed to the upside after U.S. economic data showed weakness in the manufacturing and services sectors.

Last week, the AUD/USD settled at .6627, down 0.0087 or -1.29% and the NZD/USD finished at .6352, down 0.0082 or -1.28%.

The economic impact of the coronavirus will continue to be at the forefront this week, but the biggest impact will be revealed on Saturday when China releases its Manufacturing PMI and Non-Manufacturing PMI reports.

In Australia, traders will get the opportunity to react to the latest data on Private Capital Expenditure. The report is expected to show a 0.5% increase, up from -0.2%.

In New Zealand, the key reports are Retail Sales and ANZ Business Confidence. Retail Sales are expected to have risen 0.8%. There is no estimate for ANZ Business Confidence, but it is likely to come in worse than the previously reported -13.2.

Australian News

Minutes from the Reserve Bank of Australia’s (RBA) first meeting of the year fuelled expectations of lower interest rates, driving the AUD/USD lower.

The RBA left rates at a record low 0.75% at that meeting, but the minutes showed it was prepared to ease policy further.

In other news, Australian employment surpassed expectations for a third straight month in January but the jobless rate jumped by more than analysts had predicted, a mixed outcome that drove the Aussie lower, while fueling the argument for more stimulus.

Thursday’s data from the Australian Bureau of Statistics (ABS) showed 13,500 net new jobs were created in January, beating forecasts for 10,000 and following a surprisingly strong 28,900 gain in December. All of the increase was led by full-time work, which surged 46,200 while part-time jobs fell by 32,700.

Despite the rise in employment, the unemployment rate jumped to 5.3% from 5.1% in December which was the lowest reading since March 2019 as more people went looking for work. Analysts had predicted that number would rise to 5.2%.

New Zealand News

There were no major releases from New Zealand last week. The Kiwi’s decline was largely attributed to sympathy selling in response to the weakness in the Australian Dollar.

On Friday, RBNZ Governor Orr said in a speech that the central bank needs to be prepared for the unanticipated. He was talking about the economic impact of the coronavirus, of course. He also said he is in no hurry to go lower with the cash rate and the RBNZ is in a favorable position with the Official Cash Rate (OCR) at 1%. He further added that record low international interest rates are a new challenge for the central bank.

Weekly Forecast

Despite Friday’s rebound rally in the Aussie and Kiwi, the trend is likely to remain down. We’re expecting to see a further decline in both currencies because investors are likely to remain skittish over the coronavirus.

Even if reports start to show the virus outbreak receding, global growth is still set to fall to zero in the first quarter. A near-term hit to the Australian and New Zealand economies looks unavoidable.

The Week Ahead – Economic Data and COVID-19 Updates to Drive the Majors

On the Macro

It’s a relatively busy week ahead on the economic calendar, with 55 stats to monitor in the week ending 28th February. In the previous week, just 64 stats had been in focus.

For the Dollar:

It’s a busy week ahead for the Dollar.

The markets will have to wait until Tuesday, however, to assess the impact of COVID-19 on the U.S consumer, with the all-important CB Consumer Confidence figures for February due out.

FED Chair Powell had talked of economic resilience and with the U.S equity markets close to record highs, there’s little reason to expect any deterioration. Forecasts are Dollar positive.

The focus will then shift to January durable goods orders and 4th quarter GDP numbers due out on Thursday. Barring revision from 1st estimates, we expect the durable goods orders to have the greatest influence.

COVID-19 is expected to have a material impact on key economies. The markets will want to ensure that the U.S economy remains unscathed… After all, there remains a distinct difference between survey-based and actual data.

At the end of the week, January inflation and personal spending figures are due out along with the Chicago PMI for February.

Barring material deviation from prelims, we would expect finalized consumer sentiment numbers to be brushed aside.

Over the week, housing sector figures will also draw attention mid-week, with new home and pending home sales figures due out.

The Dollar Spot Index ended the week up by 0.21% to 99.337.

For the EUR:

It’s a relatively busy week ahead on the economic data front.

In the 1st half of the week, Germany is on focus once more. February’s IFO Business Climate Index numbers are due out on Monday, ahead of 2nd estimate GDP numbers on Tuesday.

While the IFO numbers will be the key driver, any revisions to the GDP numbers will have a greater impact…

In the 2nd half of the week, French consumer spending and GDP numbers are due out along with German unemployment figures on Friday.

Expect Germany’s unemployment numbers to have the greatest influence on the day.

Through the 2nd half of the week, prelim inflation figures for February will likely have a muted impact on the EUR.

The EUR/USD ended the week up down by 0.15% to $1.0847.

For the Pound:

It’s a particularly quiet week ahead on the economic calendar.

There are no material stats scheduled for release, which leaves the hand firmly in the hands of Brexit.

On 25th February, the EU is due to deliver its starting terms for trade negotiations that begin next week. France has already talked of a tough time ahead and Britain has been clear that there can be no strings attached.

Expect chatter on trade to be the key driver in the week. Economic data out of the UK impressed last week. That should remove the near-term focus on the BoE and monetary policy.

The GBP/USD ended the week down by 0.64% to $1.2964.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

In a quiet 1st half of the week, however, economic data is limited to December’s wholesale sales figures due out on Monday. While the numbers will provide direction, the focus will be on GDP numbers due out on Friday.

Any weak numbers and expect the chances of a rate cut to rise, which should send the Loonie back to C$1.33 levels.

Outside of the stats, market risk sentiment will also be a key driver.

The Loonie ended the week up by 0.20% to C$1.3225 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively quiet week ahead.

Key stats include 4th quarter construction work done and new CAPEX figures due out on Wednesday and Thursday.

While housing sector conditions have improved and are key to supporting consumer spending, CAPEX numbers will likely have a greater influence.

Business confidence has failed to bounce back at the turn of the year. Weak investment numbers will weigh on Thursday.

On Friday, private sector credit figures are unlikely to have a material impact on the Aussie.

Outside of the numbers, expect updates on COVID-19 to also provide direction.

The PBoC and Chinese Government have delivered support and will likely deliver more if the need arises. Will it be enough to support the RBA’s view that the impact of the virus will be short-lived?

The Aussie Dollar ended the week down by 1.30% to $0.6627.

For the Kiwi Dollar:

It’s a relatively busy week ahead on the economic data front. At the start of the week, 4th quarter retail sales figures will influence on Monday. The attention will then shift to January trade data and business confidence figures due out on Thursday.

Expect the retail sales and trade figures to have a greater impact, however.

On the trade front, there will be particular interest in export figures to China that are likely to have seen a sizeable decline.

In December, exports to China had accounted for 28% of NZ exports…

The Kiwi Dollar ended the week down by 1.38% to $0.6349.

For the Japanese Yen:

It’s a relatively busy week on the economic data. The markets will need to wait until Friday, however, for key stats.

Expect prelim January industrial production and retail sales figures to have the greatest influence.

Following some particularly dire numbers out of Japan last week, more doom and gloom should test the BoJ’s resolve…

Outside of the numbers, updates from China and the region on the coronavirus will also provide direction.  Expect any rise in cases within the region to weigh on the Yen.

The Japanese Yen ended the week down by 1.67% to ¥111.61 against the U.S Dollar.

Out of China

It’s a quiet week on the economic data front. Key stats are limited to February private sector PMI numbers that are due out on Saturday.

Outside of the numbers, chatter from Beijing and COVID-19 updates will continue to be the main area of focus.

The Chinese Yuan fell by 0.58% to CNY7.0271 against the U.S Dollar in the week.

Geo-Politics

Trade Wars: It’s simmering in the background. U.S President Trump may be quietly concerned over the impact of the coronavirus on his trade win against China… China is unlikely to meet any of the terms any time soon. With the Presidential Election campaign beginning to heat up, U.S farmers may not be getting the demand that Trump had promised…

Looking across to the EU, the Airbus v Boeing battle could send the EU into a trade dispute with the U.S. While hopes are of a resolution, progress on talks will need monitoring…

UK Politics: Terms of the EU’s starting point ahead of trade negotiations are due to be delivered on 25th February.

Expect plenty of reaction from Parliament and the markets from the terms that are likely to point to that tough time ahead…

Corporate Earnings

It’s a quieter week ahead on the corporate earnings calendar, as earnings season begins to wind down. Marquee names releasing earnings include:

From the U.S: Macy’s Inc. (Tue), JC Penny Co. Inc. (Thurs),

From of the UK: Standard Chartered PLC (Mon), Rio Tinto (Wed), British American Tobacco (Thurs), and International Consolidated Airlines Group SA (Thurs)

AUD/USD and NZD/USD Fundamental Daily Forecast – Short-Covering Rally Driven by Disappointing US PMI Data

The Australian and New Zealand Dollars rebounded from multi-month lows on Friday after weaker-than-expected U.S. manufacturing and services PMI reports raised concerns over the strength of the economy. The news gave short-sellers an excuse to book profits after intensifying worries over the economic impact of the coronavirus fueled a steep sell-off throughout the week.

On Friday, the AUD/USD settled at .6627, up 0.0014 or +0.21% and the NZD/USD finished at .6352, up 0.0020 or +0.31%.

Last week, the AUD/USD plunged to an 11-year low – its worst level since the global financial crisis – following an unexpected jump in unemployment. On Friday, RBNZ Governor Orr said in a speech that the central bank needs to be prepared for the unanticipated. He was talking about the economic impact of the coronavirus, of course. He also said he is in no hurry to go lower with the cash rate and the RBNZ is in a favorable position with the Official Cash Rate (OCR) at 1%. He further added that record low international interest rates are a new challenge for the central bank.

Aussie, Kiwi Rebound after US PMIs Disappoint

The Australian and New Zealand Dollars posted a dramatic technical closing price reversal bottom on Friday after a pair of reports showed U.S. business activity in both the manufacturing and services sectors stalled in February as companies increasingly concerned about the coronavirus, a survey of purchasing managers showed Friday.

The IHS Markit flash services sector Purchasing Managers’ Index dropped to 49.4 this month, the lowest since October 2013 and signaling that a sector accounting for roughly two-thirds of the U.S. economy was in contraction for the first time since 2016.

Economists polled by Reuters had forecast a reading of 53, down slightly from January’s final reading of 53.4. A reading below 50 indicates contraction.

The services sector new business index dropped to 49.7, the lowest since October 2009, form 52.5 last month.

“The deterioration was in part linked to the coronavirus outbreak, manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions,” HIS Markit chief business economist Chris Williamson said in the report.

Williamson also noted that companies were cautious about spending because of worries about a broader economic slowdown and uncertainty ahead of U.S. presidential elections in November.

The manufacturing sector barely escaped a slip into contraction, with the flash reading there at 50.8, the lowest since August and down from 51.9 in January. Economists had forecast a reading of 51.5, according to the Reuters poll.

Short-Term Outlook

The price action suggests AUD/USD and NZD/USD traders were heavily over-weighted to the downside and needed to rebalance after U.S. Treasury yields plunged following the release of the weaker-than-expected U.S. Manufacturing and Services PMI reports.

Although the Aussie and Kiwi strengthened after the news was released, it was short-covering and not new buying that drove prices higher. Both the Australian and New Zealand economies are likely to struggle as the economic impact of the coronavirus is expected to worsen. Any rallies in the AUD/USD and NZD/USD are likely to be limited by renewed short-selling.

The Weekly Wrap – U.S PMIs and the Coronavirus Drive Risk Aversion

The Stats

It was a busy week on the economic calendar, in the week ending 21st February.

A total of 72 stats were monitored, following the 46 stats in the week prior.

Of the 72 stats, 39 came in ahead forecasts, with 24 economic indicators coming up short of forecast. 9 stats were in line with forecasts in the week.

Looking at the numbers, 27 of the stats reflected an upward trend from previous figures. Of the remaining 45, 36 stats reflected a deterioration from previous.

For the Greenback, it was a particularly bullish week, with risk aversion and positive economic data driving demand for the Dollar. That was the story until Friday when the Dollar hit speed bumps as private sector activity waned.

The Dollar Spot Index rose by 0.21% to 99.337, in the week.

Out of the U.S

In the 1st half of the week, key stats in the week included manufacturing numbers out of NY State and January wholesale inflation figures.

Any concerns over the impact of the coronavirus on U.S manufacturing sector activity would have eased. The Index jumped from 4.80 to 12.90 in February.

Wholesale inflationary pressures were also on the rise. Core producer prices rose by 0.5% in January, following a 0.1% rise in December. Producer prices also rose by 0.5%, following a 0.1% increase in December.

The focus then shifted to Philly FED Manufacturing and U.S prelim private sector PMI numbers for February.

On Thursday, the Philly FED Manufacturing Index jumped from 17.0 to 36.7 in February. Economists had forecast a fall to 10.0.

Private sector PMIs failed to impress on Friday, however.

The all-important U.S service sector contracted in February. According to prelim February figures, the Services PMI fell from 53.4 to a 76-month low 49.4.

Things were not much better for the manufacturing sector, with the PMI falling from 51.9 to 6-month low 50.8. As a result, the U.S Composite Output Index slumped to a 76-month low 49.6.

Friday’s numbers will have created some uncertainty over the U.S economic outlook that struggled in February. The ISM numbers will be key… Did the FED Chair get it that wrong?

On the monetary policy front, the FOMC meeting minutes from Wednesday had limited impact. FED Chair Powell’s testimony from last week was considered more current.

In the equity markets, the Dow fell by 1.38%, with the S&P500 and NASDAQ down by 1.25% and by 1.59% respectively.

Out of the UK

It was a busy week on the economic calendar.

In the early part of the week, employment and inflation figures provided direction.

In December, average wages plus bonuses rose by 2.9%, easing from 3.2% in November. While wage growth slowed, employment continued to rise at a solid clip in the final quarter. Employment rose by 180k in December, following on from a 208k rise in the 3-months to November.

A 5.5k rise in claimant counts in January suggests that the unemployment rate will hold steady at 3.8%.

On Wednesday, inflationary pressures picked up at the start of the year, with the annual rate of inflation accelerating to 1.8%.

While the stats were skewed to the positive in the 1st half of the week it was not enough to support the Pound, however.

In the 2nd half of the week, retail sales and private sector PMI numbers also impressed.

Core retail sales rose by 1.6% in January, with retail sales rising by 0.9%, the pickup coming in spite of rising consumer prices.

Wrapping things up on Friday, private sector PMI numbers delivered support to the Pound.

The Manufacturing PMI rose from 50.0 to 51.9, while the Services PMI fell from 53.9 to 53.3, leaving the Composite unchanged at 53.3.

Upbeat stats in the week further eased any expectation of a BoE rate cut near-term, leading the Pound back to $1.29 levels.

Outside of the numbers, Brexit chatter was also in focus as France looked to send a strong message of intent across the Channel.

Britain’s chief negotiator David Frost delivered Britain’s goals on Monday, while also stating that signing up to EU standards would defeat the purpose of Brexit. The comments came in response to warnings from the French government as the EU and Britain prepare to begin trade negotiations…

France’s warnings and Britain’s stance suggest a tough time ahead, which left the Pound in the red early in the week.

In the week, the Pound fell by 0.64% to $1.2964, with the FTSE100 ending the week down by 0.07%.

Out of the Eurozone

It was a quiet start to the week economic data front, with economic data limited to economic sentiment figures out of Germany and the Eurozone.

The numbers were skewed to the negative, with investor concerns over the effects of the coronavirus weighing.

The Eurozone’s Economic Sentiment Index fell from 25.6 to 10.4, with the German Sentiment Index falling from 26.7 to 8.7.

In the 2nd half of the week, however, the stats were skewed to the positive.

Consumer confidence seemed unaffected by the spread of the coronavirus. Germany’s GfK Consumer Climate Index fell by 9.9 to 9.8, with the Eurozone’s consumer confidence rising from -8.1 to -6.6.

At the end of the week, prelim private sector PMI numbers were also skewed to the positive.

Manufacturing sector activity picked up in February, with the Eurozone’s PMI hitting a 12-month high.

While the Eurozone’s Composite rose from 51.3 to 51.6, it wasn’t all smooth sailing, with new orders continuing to weigh.

Finalized inflation figures from member states and the ECB monetary policy meeting minutes had a muted impact on the EUR.

For the week, the EUR rose by 0.15% to $1.0847, with a 0.57% rally on Friday reversing losses from the week.

For the European major indexes, it was a bearish week. The DAX30 fell by 1.20% to lead the way, with the CAC40 and the EuroStoxx600 ending the week down by 0.65% and by 0.61% respectively.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week, the Aussie Dollar fell by 1.30% to $0.6627, with the Kiwi Dollar down by 1.38% to $0.6349.

For the Aussie Dollar

It was a relatively quiet week for the Aussie Dollar on the economic data front.

Key stats included 4th quarter wage growth numbers on Wednesday and January employment figures on Friday.

It was a mixed set of numbers, however. Wage growth continued to grow at a tepid pace of 0.5%, with the unemployment rate rising from 5.1% to 5.3%.

There was a 46.2k jump in full-time employment to limit the negative sentiment towards the Aussie Dollar on the day.

On the monetary policy front, the RBA Meeting Minutes added further pressure on the Aussie Dollar on Tuesday.

The rate statement released on 4th February had shown little concern over the likely effects of the coronavirus on the economy.

The minutes, however, sent a different message, with members also considering a rate cut at the meeting. All of this was in spite of the RBA expecting economic activity to pick up in the 2nd half of the year.

With the RBA minutes on the dovish side, risk aversion in the week added pressure on the Aussie Dollar. While numbers out of China showed the spread of the coronavirus slowing, cases elsewhere caused alarm.

For the Kiwi Dollar

It was a particularly quiet start to the week on the economic colander, with no material stats to provide direction.

A likely extended period of soft demand for goods from New Zealand weighed on the Kiwi Dollar in the week.

China’s measures to continue to contain the spread of COVID-19 is expected to weigh on demand for overseas goods.

In the 2nd half of the week, 4th quarter wholesale inflation figures on Thursday did little to support the Kiwi. Input price inflation eased from 0.9% to 0.1% in the 4th quarter. Economists had forecast an easing to 0.4%.

For the Loonie

It was a busy week on the economic calendar. Key stats included January inflation figures on Wednesday and December retail sales figures on Friday.

The numbers were mixed in the week, with a pickup in the annual rate of core inflation providing support mid-week.

Retail sales figures did little to impress, however, with retail sales stalling in December.

While the stats did provide direction, crude oil supply disruption provided support.

The Loonie rose by 0.20% to end the week at C$1.3225 against the Greenback.

For the Japanese Yen

It was a busy week on the data front.

At the start of the week, 4th quarter GDP numbers and finalized industrial production figures caught the markets off-guard on Monday.

In the 4th quarter, the economy shrank by 1.6%. Compared with the 4th quarter of 2018, the economy slumped by 6.3%.

Economic woes were attributed to the sales tax hike, typhoons, and the U.S – China trade war.

Of concern for the BoJ will be the fact that the contraction came before COVID-19 began to spread…

On Wednesday, trade figures were not much better, with Japan’s trade deficit widening from ¥154.6bn to ¥1,312.6bn.

While exports fell by 2.6% year-on-year, the numbers were not as bad as had been anticipated. February figures will give the markets a better idea of what impact the coronavirus has had on the Japanese economy.

At the end of the week, it was weak stats once more, however.

Japan’s Manufacturing PMI fell from 48.8 to 47.6, with the Services Sector PMI falling from 51.0 to 46.7.

Market jitters over the spread of the coronavirus weighed heavily on the Yen. Rising cases in Japan and the region led to the markets seeking safety elsewhere.

Economic data out of Japan suggested that there is more trouble ahead for the Japanese economy. Uncertainty over the coronavirus spread across the region was also a key driver to the Yen’s demise.

The Japanese Yen fell by 1.67% to end the week at ¥111.61 against the U.S Dollar.

Out of China

Economic data was on the lighter side in the week, with key stats limited to new loans for January.

New loans surged by CNY3,340.0bn in January, following a CNY1,140.0bn rise in December.

Outside of the numbers, the PBoC cut loan prime rates on Thursday, though not by the extent that the markets had anticipated.

The PBoC cut 1-year loan prime rates from 4.15% to 4.05%, with the 5-year LPR cut from 4.8% to 4.75%.

While the more modest cuts weighed on the markets on Thursday, updates on the coronavirus provided support. The number of cases in China was in decline in the week, with the number of deaths also falling.

Earlier in the week, fiscal and monetary policy support had given the Yuan a boost before a pullback to CNY7 levels against the Dollar.

The CSI300 rallied by 4.06%, while the Hang Seng slid by 1.82% in the week.

In the week ending 21st February, the Yuan fell by 0.58% to CNY7.0271 against the Greenback.

NZD/USD Forex Technical Analysis – Close Over .6332 Forms Closing Price Reversal Bottom

The New Zealand Dollar is bouncing back on Friday after reports showed U.S. business activity in both the manufacturing and services sectors stalled in February as companies have grown increasingly concerned about the coronavirus, a survey of purchasing managers showed Friday.

The IHS Markit flash services sector Purchasing Managers’ Index dropped to 49.4 this month, the lowest since October 2013 and signaling that a sector accounting for roughly two-thirds of the U.S. economy was in contraction for the first time since 2016. Economists polled by Reuters had forecast a reading of 53, down slightly from January’s final reading of 53.4.

The services sector new business index dropped to 49.7, the lowest since October 2009, from 52.5 last month. The manufacturing sector barely escaped a slip into contraction, with the flash reading there at 50.8, the lowest since August and down from 51.9 in January. Economists had forecast a reading of 51.5, according to a Reuters poll.

At 17:25 GMT, the NZD/USD is at .6353, up 0.0021 or +0.33%.

Daily NZD/USD

Daily Technical Analysis

The main trend is down according to the daily swing chart, however, the NZD/USD is currently in a position to post a potentially bullish closing price reversal bottom. This chart pattern won’t change the main trend to up, but it could shift momentum to the upside.

The short-term range is .6488 to .6303. Its retracement zone at .6396 to .6416 is the nearest potential upside target.

Daily Technical Forecast

Based on the early price action and the current price at .6353, the direction of the NZD/USD into the close on Friday is likely to be determined by trader reaction to the downtrending Gann angle at .6348.

Bullish Scenario

A sustained move over .6348 will indicate the presence of buyers. If this move creates enough upside momentum then look for a potential rally into the short-term 50% level at .6396.

Overtaking .6396 will indicate the buying is getting stronger with the next target a price cluster at .6416 to .6418. Since the main trend is down, sellers are likely to come in on a test of this area.

Bearish Scenario

A sustained move under .6348 will signal the presence of sellers. The first downside target is a long-term uptrending Gann angle at .6331. If this angle fails as support then look for a possible retest of today’s intraday low at .6204.

Side Notes

A close over .6332 will form a potentially bullish closing price reversal bottom. If confirmed, this could trigger a 2 to 3 day counter-trend rally. It will not signal a change in trend.

Private Sector PMIs and the Coronavirus in Focus as Risk Aversion Hits

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Japanese Yen was in action, with January inflation figures and prelim February private sector PMIs in focus.

Outside of the numbers, risk aversion plagued as the markets responded to news updates on the spread of the coronavirus.

For the Japanese Yen

The annual rate of core inflation picked up from 0.7% to 0.8% in January, while the annual rate of inflation eased from 0.8% to 0.7%. The numbers were in line with forecasts. Consumer prices stalled in January, following a 0.1% rise in December.

The Japanese Yen moved from ¥112.048 to ¥112.030 upon release of the figures that preceded the PMIs.

In February, the Manufacturing PMI fell from 48.8 to 47.6, with the Services PMI falling from 51.0 to 47.6, according to prelim numbers.

The Japanese Yen moved from ¥112.118 to ¥112.0132 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.13% to ¥111.95 against the U.S Dollar.

Elsewhere

At the time of writing, the Kiwi Dollar was down by 0.41% to $0.6307, with the Aussie Dollar down by 0.29% to $0.6596.

The Day Ahead: 

For the EUR

It’s a busy day ahead on the economic calendar. Key stats include France, Germany and the Eurozone’s prelim private sector PMIs for February.

Finalized January inflation figures from Italy and the Eurozone are also due out but will likely have a muted impact on the EUR.

Forecasts are EUR negative and we can expect plenty of sensitivity to the numbers. The PMIs will give the markets an indication of just how bad things are likely to get on the economic front.

From the U.S, private sectors PMIs are also due out and will also influence risk sentiment later in the day.

At the time of writing, the EUR was up by 0.07% at $1.0793.

For the Pound

It’s another relatively busy day ahead on the economic calendar. Key stats include prelim private sector PMI numbers for February.

We saw January’s private sector activity give the BoE reason to pause in the last MPC meeting. Expect any dire numbers to raise expectations of BoE support near-term. The market focus will be on the services PMI…

Outside of the numbers, there is always Brexit chatter to also impact.

At the time of writing, the Pound was up by 0.09% to $1.2893.

Across the Pond

It’s a relatively busy day ahead on the U.S economic calendar. Key stats include February’s prelim private sector PMIs and January existing home sales figures.

Expect the PMI numbers to have the greatest impact on the Dollar and risk appetite.

While the focus will be on service sector PMI numbers, the manufacturing PMI will need to hold its ground.

The markets are expecting a resilient U.S economy amidst the spread of the coronavirus.

At the time of writing, the Dollar Spot Index was down by 0.06% to 99.6803.

For the Loonie

It’s a relatively busy day ahead on the economic calendar, with December retail figures due out of Canada.

With the BoC sitting on the fence digesting economic data, expect the Loonie to be particularly responsive to the numbers.

Any slide in spending and we can expect the BoC to begin leaning towards providing further support.

The Loonie was up by 0.07% at C$1.3250 against the U.S Dollar, at the time of writing.

AUD/USD and NZD/USD Fundamental Daily Forecast – Australian Unemployment Rate Climbs; Rate Cut Chances Rise

The Australian and New Zealand Dollars are trading sharply lower on Thursday after a surprise jump in the Australian Unemployment Rate raised the chances of an April rate cut by the Reserve Bank of Australia (RBA). Data from the Australian Bureau of Statistics showed the seasonally adjusted unemployment rate in January rose to 5.3% from a reading of 5.1% in December.

At 09:33 GMT, the AUD/USD is trading .6630, down 0.0048 or -0.72% and the NZD/USD is at .6345, down 0.0041 or -0.64%.

Chance of March RBA Rate Cut Rises to 40 – 50%

“While the fall in the unemployment rate to 5.1% in December gave the RBA the signal that another interest rate cut was not necessary at its February meeting, today’s data confuses the interest rate debate because the RBA’s latest forecasts assume the unemployment rate will average 5.2% for now,” Diana Mousina, senior economist at AMP Capital, wrote in a note.

“in our view, the higher than expected lift in the unemployment rate on its own is unlikely to push the RBA to cut at its March meeting as the central bank would want to see if the increase in the unemployment rate will be repeated in next month’s employment figures,” Mousina said, though she warned the chance of a rate cut in March is high at around 40-50%..

Jobless Rate Jumps in January

The Australian Bureau of Statistics (ABS) on Thursday reported the unexpected 0.2 percentage point increase in the national jobless rate. Unemployment jumped to 5.3 percent in January after a 31,500 rise in the number of people looking for work.

The Employment Change report showed the economy added 13.5K jobs in January. Traders were looking for a 10.0K increase. But this news wasn’t necessarily bullish because an extra 46,200 people gained full-time work through the month, but this was offset by a 32,700 drop in the number of part-time workers.

The jobless rate was pushed up by the large rise in the number of people out of work in a month affected by bushfires and the coronavirus outbreak. There were almost 726,000 people looking for employment, the largest number since April 2018.

The ABS also reported the number of hours worked fell by 8.1 million or 0.4 percent despite the increase in the proportion of full-time workers.

Daily Forecast

Simply stated, if unemployment continues to rise, interest rates will fall again. Since jobs data tends to be volatile from month-to-month, today’s figures are unlikely to prompt the RBA to cut rates in March. However, the unemployment rate is expected to continue to rise so a near-term future rate cut seems to be inevitable.

Capital Economics analyst Ben Udy said, “Business surveys are once again pointing to weaker employment growth this year, and household surveys are consistent with our forecast of the unemployment rate rising to 5.5 percent by the middle of this year. If we are right, we think that will be enough to convince the RBA to cut rates by 25 basis points in April and July.”

That would take the official Australian cash rate down to a fresh record low of just 0.25 percent, at which point the RBA would likely need to consider unconventional policy moves, such as quantitative easing, if the economy remained weak.

Economic Data Puts the EUR, the GBP and the U.S Dollar in the Spotlight

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Aussie Dollar and Kiwi Dollar were in action through the early part of the day.

Later today the PBoC will also be the spotlight.

For the Kiwi Dollar

4th quarter wholesale inflation figures were in focus at the start of the day. The producer price input price index rose by 0.1% in the 4th quarter. Economists had forecast a 0.4% rise. In the 3rd quarter, the index had risen by 0.9%.

According to NZ Stats,

  • Farm expenses (excl. livestock) stalled in the 4th quarter, following a 0.8% rise in the 3rd
  • Inputs were up by just 0.3% from the 4th quarter of 2018, softening from 2.1% in the 3rd

The Kiwi Dollar moved from $0.63871 to $0.63851 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.42% to $0.6359.

For the Aussie Dollar

Employment rose by 13.5k in January, following a 28.9K rise in December. Economists had forecast a 10k rise.

According to the ABS,

  • The total number of people in full-time employment increased by 46,200, while people in part-time employment slid by 32.700.
  • Since January 2019, full-time employment increased by 143,800 people, while part-time employment increased by 103,500 people.
  • The employment to population ratio held steady at 62.6% in December 2019 and was up by 0.2 pts since January 2019.
  • The unemployment rate crept up from 5.1% to 5.3%, however, as the participation rate rose by 1 point to 66.1%.

The Aussie Dollar moved from $0.66911 to $0.66797 upon release of the figures. At the time of writing, the Aussie Dollar was down by 0.46% to $0.6644.

On the Monetary Policy front

The PBoC is scheduled to deliver its loan prime rates for February. Expectations are for the PBoC to cut 1-year loan prime rates from 4.15% to 3.95% and to cut 5-year loan prime rates cut from 4.80% to 4.65%.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.07% to ¥111.29 against the U.S Dollar.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include German consumer confidence and Eurozone consumer confidence figures.

Wholesale inflation figures out of Germany and finalized inflation figures for January are due out France.

Barring particularly dire inflation numbers, we expect German and Eurozone consumer confidence figures to be the key drivers.

Concerns over the spread of COVID-19 and impact on the global economy will likely weigh on the confidence figures. With the manufacturing sector in the doldrums, consumer spending will be all the more important through the 1st quarter to support growth.

Outside of the numbers, monetary policy divergence will continue to go against the EUR near-term, following the FOMC meeting minutes overnight.

As the markets respond further to the FOMC meeting minutes, the ECB monetary policy meeting minutes, due out later today, will also garner interest.

At the time of writing, the EUR was down by 0.06% at $1.0799.

For the Pound

It’s another relatively busy day ahead on the economic calendar. Key stats include January retail sales figures due out later this morning.

Expect today’s figures to have a material impact on the Pound and sentiment towards BoE monetary policy.

While numbers will provide direction, there’s always Brexit chatter to offset the effects of any positive numbers.

Trade negotiations between Britain and the EU are due to start in March and the EU is already talking tough…

At the time of writing, the Pound was down by 0.04% to $1.2915.

Across the Pond

It’s a relatively busy day ahead on the U.S economic calendar. Key stats include the weekly jobless claims and the Philly FED Manufacturing Index figures for February.

Barring a jump in initial jobless claims beyond 220k, the focus will be on the Philly FED figures. Forecasts are Dollar negative.

At the time of writing, the Dollar Spot Index was down by 0.07% to 99.635.

For the Loonie

It’s a relatively quiet day ahead on the economic calendar, with January new housing price index figures due out of Canada.

We would expect the numbers to have a muted impact on the Loonie, however. The focus will remain on updates from China and risk appetite on the day.

The Loonie was down by 0.04% at C$1.3226 against the U.S Dollar, at the time of writing.

AUD/USD and NZD/USD Fundamental Daily Forecast – Traders Eyeing Australian Jobs Data

The Australian Dollar finished lower on Wednesday and the New Zealand Dollar ended up flat as investors continued to assess the potential impact of the coronavirus on their respective economies. Once again traders of both currencies refrained from participating in the “risk on” trade. Furthermore, both the Aussie and the Kiwi showed a limited reaction to the somewhat dovish minutes from the U.S. Federal Reserve.

On Wednesday, the AUD/USD settled at .6678, down 0.0010 or -0.15% and the NZD/USD closed at .6386, down .0001 or -0.1%.

Australian Dollar

Traders are awaiting the release of the latest Employment Change and Unemployment Rate reports. The Employment Change report is expected to show the economy added 10K new jobs in January. The Unemployment Rate is expected to come in at 5.2%, up slightly from the previously reported 5.1%.

About a month ago, the government reported that Australian employment outpaced forecasts for a second month in December, pushing the jobless rate to a nine-month low. The news prompted analysts to give up on a February rate cut by the Reserve Bank of Australia (RBA).

Recently RBA Governor Philip Lowe said while the unemployment rate at 5.1% is reasonable, it is desirable to have it much lower.

“If you told me two or three years ago we would have employment growth averaging close to 2.5%. I would have thought the unemployment rate would be close to four now,” he said.

“The big surprise has been rising labor force participation. There’s been no shortage of jobs growth in Australia. In fact, it has been very strong. But it is being met with a lot of extra labor supply.”

On February 7, the RBA updated its forecast for the economy. At that time, the RBA forecast that the unemployment rate would decline sooner rather than later, yet would still only reach 4.8% by mid-2022, above the estimated NAIRU of 4.5%.

ANZ Research said, “We expect the unemployment rate to drift higher, as employment growth slows before the labor market strengthens.”

The Australian Dollar could rally on Thursday if the monthly employment data beats the estimates as it would further encourage investors to unwind RBA interest rate cut expectations. However, gains could be limited because of increasing concerns over the economic damage from the coronavirus outbreak.

The Mid-Week Wrap and Look Ahead – 20th January 2020

The middle of February has been reached. How have the major currencies been doing in regards to data during the last half week?

For the U.S Dollar

It’s been a quiet start to the week for the U.S Dollar, with the U.S holiday on Monday.

In spite of the quiet start, economic data impressed on Tuesday, with the NY Empire State Manufacturing Index on the rise in February.

The figures supported FED Chair Powell’s outlook towards the U.S economy, which he expected to remain resilient.

A pickup in manufacturing sector activity as other economies see manufacturing woes was certainly impressive.

Coupled with risk aversion on Tuesday, stemming from the prospect of COVID-19 having a greater impact on the global economy, the Dollar rallied by 0.44% on Tuesday to reverse losses from the start of the week.

Over the remainder of the week, there’s still plenty to consider.

On Wednesday, the FOMC meeting minutes are due out after housing sector figures due out earlier in the day.

The focus will then shift to Philly FED Manufacturing Index figures on Thursday and private sector PMIs on Friday.

Expect February’s prelim Service PMI to have the greatest impact.

For the EUR

It’s also been a relatively quiet start to the week on the economic calendar.

ZEW Economic Sentiment figures out of Germany and the Eurozone weighed on the EUR on Tuesday.

Concerns over the impact of COVID-19 on global trade had a greater impact on sentiment than had been anticipated.

A combination of disappointing data and risk aversion on Tuesday saw the EUR pullback to $1.07 levels.

Apple’s earnings warning on Monday delivered the markets with a reality check early in the week.

The Eurozone economy is certainly more reliant upon global trade. With the Eurozone economy stuttering in the 4th quarter, it’s not looking good for H1 2020, even with fiscal and monetary policy support.

Over the remainder of the week, German and Eurozone consumer confidence figures will influence ahead of private sector PMIs on Friday.

On the monetary policy front, the ECB monetary policy meeting minutes shouldn’t provide too many surprises…

For the Pound

January claimant count figures and another sizeable jump in employment provided support on Tuesday. The better than expected numbers left the unemployment rate at 3.8% in December.

While wage growth was on the rise, wages + bonuses eased in December, limiting any major upside for the Pound.

Ultimately, negative chatter from France and Britain’s chief trade negotiator David Frost weighed on the Pound early in the week.

France talked of tough talks ahead.  Frost made it clear that Britain was not interested in having strings attached.

Through the remainder of the week, inflation figures are due on Wednesday, with retail sales figures due out on Thursday.

Positive numbers would leave monetary policy out of the equation near-term, allowing the markets to focus on Brexit…

It appears that, with the exception of the GBP, most currencies had no macroeconomic data impacting them. In the meantime, how have commodity currencies behaved?

It’s been a choppy week for the commodity currencies, with the Aussie Dollar and Kiwi Dollar under pressure.

While there were no material stats due out of Australia or NZ to provide direction, sentiment towards the economic outlook weighed on Tuesday.

For the Aussie Dollar

The RBA meeting minutes from 4th February added further pressure on the Aussie Dollar on Tuesday. While the RBA statement had been somewhat calm over the likely impact of COVID-19, the minutes suggested otherwise.

There was also a discussion on cutting rates further, which added further pressure on the Aussie Dollar.

Through the remainder of the week, 4th quarter wage growth figures on Wednesday and employment figures on Thursday will provide direction.

For the Kiwi Dollar

There were no stats to provide direction through the 1st half of the week. That didn’t stop the Kiwi from sliding, however. Economic disruption in China that extends beyond the 1st quarter will have a material impact on the NZ economy.

At the end of last year, China accounted for 28% of NZ exports. That’s quite a substantial number…

Through the remainder of the week, 4th quarter wholesale inflation figures will provide direction on Thursday.

Ultimately, however, it will be sentiment towards the global economic outlook that will ultimately drive the pair. Any pick in the rate of infections in China and beyond would be negative.

It appears that the commonwealth currencies have traded flat. What about the dominant currencies in Asia, the Yen, and the Yuan?

For the Japanese Yen

4th quarter GDP numbers on Monday sounded the alarm bells. A 1.6% contraction in the 4th quarter came ahead of what is likely to be an even tougher 1st quarter.

While typhoons, a sales tax, and the U.S – China trade war weighed, its COVID-19 that will hurt quite possibly into Q2.

On Wednesday, trade data came in better than expected though the trade deficit saw a marked widening in January.

Exports fell by 6.4% to China, by 7.7% to the U.S and by 5.4% to Germany.

While the stats were skewed to the negative, the Yen continued to find support as risk aversion gripped the markets early in the week.

Expect more of the same through the remainder of the week. The BoJ must be under some pressure to make a move, however…

For the Chinese Yuan

There were no material stats to provide direction, leaving the Yuan in the hands of risk appetite.

Mixed sentiment towards China’s economic outlook and COVID-19 updates provided direction.

The government announced tax and fee cuts, with the PBoC allowing banks to let NPLs rise to support the economy.

In spite of the support, the Yuan was on the back foot in response to Apple’s earnings warning…

Disruption to the Chinese economy and the region may well be greater than currently anticipated.

Expect the PBoC and Beijing to continue to look to deliver support. This may be positive near-term, but a weakening in the Yuan will also be needed.

On Thursday, the PBoC is in action, with the markets expecting loan prime rates to be cut further.