While most of the attention this week has been sucked up by the ongoing situation in the euro zone and the Greek bailout we had several interesting fundamental releases in other countries which may help to secure some of the conventional wisdom prior to this week. The four key indicators are New Zealand retail sales, Australia’s employment data, UK retail sales, and Canada’s inflation report. The take a look at each of these and what it could mean for their respective currencies.
All in all, the reports were positive and show that despite the concerns emanating from slowdown as a result of the Euro-zone commodity currencies should continue to do well in the beginning of 2012 when looking at recent macro data. We can add the UK into this camp as the retail sales data it releases this week was also a big surprise and can help to shift sentiment around that economy’s prospects.
In New Zealand we saw retail sales rise 2.2% in the fourth quarter of figure that was double expectations and shows that the New Zealand economy is likely to end 2012 on a stronger note than expected. We previewed this release here. The retail sales report shows that the economy is on firmer footing a that inflation pressures may begin to show themselves in upcoming data, which would be a major heads up for the central bank. This could give the RBNZ more confidence to raise rates sometime in 2012.
Prior to this month, we had seen that Credit Suisse overnight index swaps showing expectation that interest rates would be at the same 2.5% level in one years time. Now that indexes showing expectation of 15 basis points of rate hikes in the next year, a move that can help support the NZD.
AUS Employment Change
Much has been made about the fact that the Reserve Bank of Australia decided to hold rates steady last week instead of cutting interest rates for a 3rd straight meeting. The RBA said that any future rate cuts would be based on the deterioration in domestic demand. Therefore one of the key indicators we were looking at coming out of this RBA meeting was how employment we do in Australia. What we found was a strong gain of 46.3K jobs for January the figure that was four times expectations.
[IndicatorChart width="670" height="300" indicator="74" country="AUS"]
This positive employment report suggests that the RBA may have had the right idea when holding rates steady. As a result we may see the Australian dollar – once fundamental factors become a bigger part of where currencies headed not just risk sentiment based on the latest headlines from Greece – supported.
UK Retail Sales – UK Consumers Surprise Shifting the Thinking on UK Economy
One of the biggest surprises this week was a 0.9% jump in January’s UK retail sales. The forecast coming into the was for a 0.3% decline. Following last week’s move by the Bank of England to increase quantitative easing this report may work to limit future QE by the Bank of England. Check out the preview of this release here.
One of the key concerns for the UK economy is the fact that it continues to show weak domestic consumption. After the report, this assumption may have to be re-examined. If domestic demand does rebound and contributes to growth the UK can skirt a technical recession by posting growth in the 1Q. Then, the other assumption that the Bank of England will continue to increase its QEt may also be misguided and as a result the Pound may be stronger than expected.
CAN Inflation – Higher Inflation Means No Rate Cuts from BOC
And finally we had in Friday’s session Canada’s consumer price index come out and it showed prices rising faster than expected in January with will prices moving back above the 2% level in annual terms. Headinel inflation rose 2.5%, stopping a recent trend towards weaker prices.
Stronger inflation data would limit the possibility of the Bank of Canada deciding to undertake interest rate cuts this year, in essence putting a nail in the coffin for the rate cut crowd. The other key expectation is that the Bank of Canada will raise interest rates in the early part of 2013. However, if the bank begins to believe that by keeping interest rates low for too long that can create distortions in the market it may be inclined to raise interest rates earlier, a development which would favor the Canadian dollar.
Nick Nasad is an analyst, educator, and trader; and one of the main contributors to FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
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