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Bob Mason
US Economy

Earlier in the Day:

Economic data released through the Asian session was limited to December ANZ Business Confidence figures out of New Zealand. While the data was on the lighter side, the RBA’s monetary policy meeting minutes were also released. Of greater significance through the morning would be any updates from the China’s Annual Central Economic Work Conference (“CEWC”), where the markets will be watching out for any news on plans to combat the negative effects of the ongoing U.S – China trade war to support the economy.

For the Kiwi Dollar, the ANZ Business Confidence improved in December, with a net 24.1% of those surveyed expecting general business conditions to deteriorate in the year ahead, which was an improvement on November’s net 37.1%.

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  • Firms’ perceptions of their own activity rose by 6 points to a net 14% expecting a pickup.
  • The construction sector remained the most optimistic at +22%, with the retail sector the most pessimistic at +1.9%.
  • A net 4% of firms are expecting to lift investment, up 8 points, with employment intentions rising by 5 points to +7%.
  • Profit expectations rose by 8 points to -6%, with the construction sector the only sector with a net positive at +4%, the agriculture sector the most pessimistic at -48%.
  • A net 19% of businesses expect it to be tougher to get credit, improving on 31% in November, pointing to credit conditions easing to levels not seen since Oct-16.
  • Firms’ pricing intentions fell by 4 points to +24%. Inflation expectations also fell, down 0.1 percentage point to 2.2%.
  • Firms cited a lack of skilled workers and regulation as the two biggest problems faced.

The Kiwi Dollar moved from $0.68065 to $0.68181 upon release of the data, before rising to $0.6853 at the time of writing, a gain of 0.73% for the session.

For the Aussie Dollar, the RBA’s monetary policy meeting minutes did the Aussie Dollar few favours for yet another month. Key points from the minutes included:

  • While the global economy expansion continued, there were signs of a slowing in global trade in the 3rd
  • Chinese authorities continued to ease policy to support growth, while cautious over risks in the financial sector.
  • Global inflation remained low, while wage growth had picked up economies that had seen a significant tightening in labour markets.
  • A significant fall in oil prices would likely reduce global headline inflation over the next year, if falling prices are sustained.
  • In Australia, there had been a generalised tightening of credit availability, with little net growth in credit to small businesses in prior months.
  • Standard variable mortgage rates were a little higher, while rates charged to new borrowers for housing were generally lower than for outstanding loans.
  • Business conditions were positive and non-mining business investment was expected to increase.
  • The outlook for household consumption continued to be a source of uncertainty because growth in household income remained low, debt levels were high and housing prices had declined, leading to downside risks.
  • The Bank’s central scenario remained for steady growth in consumption however, supported by continued strength in labour market conditions and a gradual pickup in wage growth, supporting expectations of an above trend growth in the economy.
  • Conditions in Sydney and Melbourne housing markets continued to ease, with nationwide rent inflation being low.
  • Members continued to agree that the next move in the cash rate was more likely to be an increase than a decrease, but that there was no strong case for a near-term adjustment in monetary policy.

The Aussie Dollar moved from $0.71760 to $0.71779 upon release of the minutes, before rising to $0.7196 at the time of writing, a gain of 0.24% for the session.

Elsewhere, the Japanese Yen stood at ¥112.66 against the U.S Dollar, a gain of 0.15% for the session, with the Greenback continuing to struggle ahead of tomorrow’s policy decision and release of the economic projections.

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The Day Ahead:

For the EUR, economic data scheduled for release through the day is limited to Germany’s IFO Business Climate Index numbers for December, which is forecasted to be EUR negative, a downward trend in German business confidence forecasted to continue for a 4th consecutive month.

At the time of writing, the EUR was up 0.05% to $1.1354, with today’s stats the key driver today.

For the Pound, it’s another quiet day on the data front, with no material stats scheduled for release through the day.

While no further action is expected from the EU on Brexit through the remainder of the year, things are heating up in Parliament and, while British PM May will be attempting to avoid a second Referendum, it may be given to Parliament to decide on whether a second Referendum should take place. There’s a call for a vote of no confidence by the Labour Party on Theresa May, not the government, which will keep things interesting through the week.

The possibility of a snap decision to hold a Parliamentary vote on Brexit matters will also keep the markets and the GBP edgy through the week.

At the time of writing, the Pound flat at $1.2624, with Brexit chatter the key driver today.

Across the Pond, economic data scheduled for release through the U.S session includes November building permit and housing start numbers.

Sensitivity towards the housing sector has risen in recent months, with concerns over the housing sector and a shift in sentiment towards the U.S economy likely to make the Dollar respond to any disappointing numbers.

Weak numbers may have some influence on the FED this week, the FOMC economic projections now anticipated to be on the more dovish side that has weighed on the Dollar early in the week.

Outside of the numbers, we can expect President Trump to respond to any chatter from the CEWC, which could hit risk appetite, through whether it will be enough to prop up a Dollar on the back foot remains to be seen, a high degree of uncertainty in play going into Wednesday’s FOMC.

At the time of writing, the Dollar Spot Index was down 0.06% to 97.044.

For the Loonie, economic data is limited to October manufacturing sales that will provide the Loonie with some direction later in the day, though the numbers will need to be particularly impressive to shift sentiment towards BoC monetary policy near-term, with the API inventory numbers there to catch any attempts at a Loonie breakout.

The Loonie was up 0.01% to C$1.3406 against the U.S Dollar at the time of writing.

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