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FX Markets Today
A daily outlook for currencies
2 February 2015
New York open
It is ISM week globally, and it didn’t start well in China, though
we’re always wary of over-interpreting a tenth of a percentage
point move either side of consensus. Manufacturing PMI came in
at 49.7 compared to expectations of 49.8 but remember that the
first 5 months of last year were all below 50 with a low of 48.0 in
March 2014. Two numbers now below 50 but still on a 49 handle
doesn’t make for exciting headlines, though it was enough to knock
the Shanghai Composite Index down -2.5% and take the
cumulative year-to-date losses to -3.3%.
The immediate casualty outside the stock market was USD/JPY
which fell 60 pips to a low of 116.66; the lowest point since January
16th. The pair subsequently recovered through the Asian session
and moved on to a high of 117.88 but there’s no great enthusiasm
to chase spot higher given the somewhat nervy tone in global
To our eyes, too, Friday’s US GDP doesn’t get better when we look
at the details. The headline 2.6% figure was worse than analysts’
expectations but we’re a little concerned at the $113.1bn build-up
in inventories to their second highest level of this millennium.
Inventories contributed +0.82% to the 2.6% increase in GDP. The
big question (impossible to answer ex-ante) is whether this is
voluntary or involuntary build-up. If firms put unsold goods into
warehouses because of weak final demand, then at some point,
they'll cut back production and meet demand from inventories. In
effect, the GDP accounting effectively brings forward growth from
the subsequent quarter. The market hasn’t been in a mood to look
at data-misses in the US and shrugged this off with no concern at
all. Let’s see if it remains so sanguine going in to payrolls…
For the European PMI numbers, the Spanish number was a much
better than forecast 54.7 – which helps explain why the Spanish
Government is taking the side of Germany in any negotiations with
Greece over debt forgiveness. Faced with anti-austerity
demonstrations in Madrid at the weekend, the authorities fear that
a generous Greek deal would only add to the support for the
rapidly-growing Podemos Party which is their version of Syriza.
Elsewhere across the Continent, Italy was 49.9, France 49.2 and
Germany 50.98 to leave the overall EU number in line with
forecasts at 51.0.
AUD/USD and NZD/USD Intraday
Spot rate
Spot rate
00.00am (UK)
Source: NAB, Bloomberg
12 hour Spot movement
12.00pm (UK)
Currency Performance vs. USD (1 Day)
Percentage change versus USD (Daily)
Source: NAB, Bloomberg
Foreign Exchange Rates
With no nasty surprises in the EU data and Greek Finance Minister
Varoufakis embarking on a charm offensive of European capitals,
those hoping for the EUR/USD move lower to be extended could
well be in for some disappointment. Recall that at the time of
Draghi’s ECB QE announcement, the pair was trading in the high
1.14’s and any move above 1.1395 might prompt a further bout of
short-covering. In any case, the EUR is also getting some support
from a higher EUR/GBP cross which – having touched 0.7405 last
Monday, looks to be now on its way to 0.76.
For the AUD and NZD dollars, a quieter session has been seen,
albeit with a steady bias to the upside throughout the Asian and
European sessions. Most striking was the AUD’s ability to shrug off
weak China data and, with rates markets now pricing in a 66%
probability of a cut at tomorrow’s RBA meeting, we think 0.7860
might be within reach in the absence of any last-minute headlineseeking journalist comments. For the US Dollar, meantime,
Personal Income, Spending and Inflation data today might all
continue to fan fears of a very modest slowdown in activity.
Note: Performance rates are calculated from 22:00GMT previous
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