Top/worst performers in majors versus USD today: JPY 0.1%, EUR 0.0%, GBP 0.0%, AUD -0.5%, CAD -0.3%, NZD -0.3%.
$EUR is the best performing major versus $USD in early Monday trade with +0.03% spot-returns while $CAD is the worst with -0.19%.
Falling oil prices, China growth fears, submerging markets, Brexit and Italian banks. All of those risks have one thing in common: They have not derailed the US economy. Despite concerns about a recession, it continues to grow at a steady pace. According to the Atlanta Fed, real GDP is expected to grow by 0.7% in Q1’16. That is not a great number; however, the series is extremely volatile.
The Japanese Yen finished the week higher versus the fast-falling US Dollar, but key disappointments in domestic economic data and Nikkei 225 losses kept the JPY lower against other major FX counterparts. Historically we have seen the Yen strengthen (USD/JPY weaken) on domestic equity market sell-offs. And yet this time is different for a key reason—both the Yen and the Nikkei stand to lose if the domestic economy continues to underperform. A sell-off in Japanese stocks into the fiscal year-end (March 31) left the Nikkei in negative territory for fiscal year 2015—the first such annual loss in three years. Profit warnings and disappointing Bank of Japan Tankan survey result forced further sell-offs on April 1, and current price momentum and broader sentiment favors further Japanese equity weakness. The Yen could nonetheless continue to weaken alongside stocks for one simple reason—economic underperformance will encourage the Bank of Japan to cut interest rates further into negative territory. Indeed, the BoJ sent shockwaves throughout global markets as it surprised most and cut its benchmark overnight rate to -0.10% at its January meeting. Domestic rates subsequently plummeted, and Japanese Government Bond yields are now negative for bonds maturing in under 10 years. Holding funds in Japanese Yen is an expensive proposition if you’re required to pay the government for lending it money. Thus we may continue to see capital flow out of Japan which itself will keep pressure on the JPY exchange rate. The USD/JPY in particular seems likely to test near-term lows, but that is just as easily a function of US Dollar weakness instead of Yen strength. It would take a fairly significant shift in Bank of Japan policy to improve outlook for the domestic currency.
Iran’s oil minister on Sunday rejected a Saudi demand to stop throttling up its petroleum production, potentially threatening a global deal to limit crude output and raise prices. Bijan Zanganeh’s remarks were his first comments since a report emerged last week that Saudi Arabia, the world’s largest crude exporter, would limit its production only if Iran followed suit. The dueling positions by the Middle East’s two biggest rivals for power and economic might have set off a scramble among other oil-producing nations to salvage a deal to freeze their output and stop growth in the world’s petroleum supplies.
AUD/USD declines after Australia released February retail sales figures • Resale of new and used goods 0.0% versus 0.4% expected and 0.3% prior • Data likely fueled RBA rate cut bets as 2-year government bond yields fell The Australian Dollar declined against its US namesake after Australia released its retail sales figures for February. Resale of new and used goods came in at 0.0 percent (MoM) versus 0.4 percent expected and 0.3 percent in January. The last time the country experienced neither growth nor contraction in retail trade was in December 2015.
Dutch voters will decide on Wednesday whether to support a European treaty deepening ties with Ukraine in a referendum that will test sentiment toward Brussels ahead of Britain’s June Brexit vote and could also bring a boost for Russia. The broad political, trade and defense treaty is already provisionally in place but has to be ratified by all 28 European Union member states for every part of it to have full legal force. The Netherlands is the only country that has not done so.
Greece has demanded an explanation from the IMF over a leaked conversation in which top officials allegedly discuss the Greek bailout. A transcript, published by Wikileaks, shows the officials discussing ways of putting pressure on Greece, Germany and the EU to get them to wrap up talks. One of those quoted suggests a crisis “event” may be needed to force a conclusion. Further negotiations between Athens and its lenders are due next week. Last year Greece agreed a multi-billion dollar bailout with the EU and IMF that was needed for the country to avoid bankruptcy and stay in the eurozone.
With second-tier data on tap for the week ahead, the British Pound may continue to consolidate ahead of the next Bank of England (BoE) interest-rate decision on April 14, but fresh rhetoric from Fed officials may generate a near-term rebound in GBP/USD as Chair Janet Yellen endorses a more dovish outlook for monetary policy. A pickup in the U.K. Purchasing Manager Indices may boost the appeal of the sterling and highlight an improved outlook for the region following the unexpected upward revision in the 4Q Gross Domestic Product (GDP) report.
Employment in the U.S. climbed and wages picked up in March, signs of labor-market durability in the face of lethargic global growth. The 215,000 gain in payrolls followed a revised 245,000 February advance, a Labor Department report showed Friday. Average hourly earnings increased 0.3 percent from a month earlier, while the jobless rate crept up to 5 percent as more people entered the labor force. A still-robust pace of job creation represents a vote of confidence by employers that the U.S. will hold up against an anemic global economic backdrop.
