NZD: Hit by Weak AU Employment Numbers
CAD: Demand for C$ Securities Slow
USD: Uneven US Data will keep Fed Cautious
GBP: Watch for Potential Disappointment in U.K. Retail Sales
EUR Continues to Power Higher Against the CHF
Sterling should be the major focus today. Even though with Cameron’s speech on the UK relationship with the EU has been cancelled, press reports of what he will say and the reaction of business underline that this is an issue that has potential to be GBP negative unless he changes course. Retail sales is a volatile number, but December sales are the most important of the year, with 40% more sales occurring in the month than the average. The risks for these also look to be to the downside, although the December seasonal adjustment is always unpredictable.
UK retail sales for December are also out today. December’s release is always problematic reflecting the difficulties in seasonal adjustment against the sheer scale of spending around year-end. We forecast a subdued 0.2% rise in December, modestly firmer than impliedby the BRC, benefiting from the ‘extra’ weekend this year. However, we agree with the BRC’s assessment that 2012 was an “underwhelming year” for retail activity and fear a similar start to 2013. MPC’s McCafferty also speaks today.
The euro ended the day higher against the U.S. dollar thanks to another successful Spanish bond auction. There was nothing interesting in the price action of the EUR/USD outside of the fact that the currency pair is holding near its 10 month highs. The big story continues to be its extension of gains against the Swiss Franc and British pound. The euro appears to be benefiting from capital flowing back into the Eurozone.
the main focus of the foreign exchange market = China’s GDP numbers. The outcome will not only impact how the AUD/USD trades but also risk appetite and in turn, all other major currencies. It should also cause a reaction in the financial markets that carries through from Asia into Europe and North America. The reason why China’s GDP numbers are important should be not a surprise to most investors. China and the U.S. are the 2 pillars of global growth. Economists are looking for GDP to rise by 2.2% in the fourth quarter, which would bring the annualized pace of growth to 7.8% from 7.4%. Compared to 2011, when the Chinese economy expanded by 9.3%, growth last year was significantly weaker. Europe’s sovereign debt crisis took a bite out of Chinese exports and forced the government to seriously consider overhauling its export-driven growth model. Based on the upside surprise in Chinese trade numbers, GDP growth is expected to improve in Q4 from Q3 levels but the risk is to the downside and if GDP growth falls short of expectations, we could see a continued slide in the AUD/USD. Aside from GDP, industrial production and retail sales are also scheduled for release. Improvements are expected in both production and consumer spending. The Australian dollar was hit hard last night by the surprise 5.5k drop in employment that drove the unemployment rate up from 5.3% to 5.4%. The New Zealand dollar also lost value while the Canadian dollar held steady despite a smaller increase in foreign purchases of Canadian assets during the month of November.
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