Another Brexit Shocker Hits Risk Appetite and the GBP

Earlier in the Day:

Economic data released in the Asian session this morning was on the lighter side. Key stats included 1^st quarter business confidence figures out of New Zealand and February building approvals out of Australia.

Outside of the numbers the RBA also announced its April interest rate decision by way of the RBA rate Statement.

For Kiwi Dollar,

The NZIER Business Confidence stood at -29% in the 1^st quarter, falling from a minus 17% in the 4^th quarter of last year. According to the latest NZIER survey,

• A net 27% of businesses expect a deterioration in general economic conditions in the months ahead.
• There were also a net 1% of businesses reporting weaker demand in the first quarter. This was down from a net 4% expecting increased demand in the previous quarter.
• Across the sectors, manufacturers remained the most pessimistic, due to a sharp drop in domestic demand. Export demand had improved, however.
• Cost pressures weighed on profitability, while firms expected to raise prices in the next quarter.
• Firms are expecting profitability to remain week over the next quarter. A net 2% are expecting to reduce investment in plant and machinery, the weakest level since March-12.
• A net 6% of businesses are still looking to increase headcount, with the negative outlook pinning back hiring expectations.

The Kiwi Dollar moved from $0.68019 to $0.67887 upon release of the figures. At the time of writing, the Kiwi Dollar stood at $0.6778, down by 0.41% for the session.

For the Aussie Dollar,

Australian building approvals surged by 19.1% in February, which was well ahead of a forecasted 1.7% decline. Building approvals fell by 2.3% in January. According to figures released by the ABS,

• Private dwellings excluding houses rose by 64.6%, while private houses fell by 3.6%.

The Aussie Dollar moved from $0.7122 to $0.71215 upon release of the figures. The lack of response to the data was likely to be due to the RBA rate statement due out later in the morning.

The RBA held rates unchanged at 1.5%, which was in line with market expectations. Salient points from the RBA rate statement included:

• GDP data paint a softer picture of the economy than do the labor market data.
• Growth in household consumption is being affected by an extended period of weakness in real household disposable income.
• Labour market conditions remain strong and have led to some pick-up in wage growth.
• Higher levels of spending on public infrastructure and an uptick in private investment support the growth outlook.
• The adjustment in established housing markets is continuing. Conditions remain soft and rent inflation remains low.
• Inflation remains low and stable. Underlying inflation is expected to pick up gradually over the next couple of years.
• The low level of interest rates is continuing to support the Australian economy.
• Further progress in reducing unemployment and having inflation return to target is expected. This progress is likely to be gradual, however.

The Aussie Dollar moved from $0.71052 to $0.70938 upon release of the rate statement. At the time of writing, the Aussie Dollar was down 0.31% to $0.7090.

For the Japanese Yen,

There were no material stats released to provide direction to the Yen. Market risk sentiment through the early part of the

At the time of writing, the Japanese Yen flat at ¥111.35 against the U.S Dollar.

The Day Ahead:

For the EUR

Spanish unemployment change figures and the Eurozone’s unemployment rate are due out later this morning. Barring particularly disappointing numbers out of Spain, we would expect the Eurozone’s figure to have a greater influence on the EUR. Forecasts are for the unemployment rate to hold steady at 7.8%.

Outside of the stats, risk sentiment will also have an impact. The UK Parliament voted on the various Brexit alternatives that had been narrowed down following last Wednesday’s vote. Concerns over a hard Brexit will have now increased following a lack of support for any of the alternatives. The outcome was negative for risk sentiment and for the EUR.

At the time of writing, the EUR was down 0.11% at $1.1201.

For the Pound

Construction PMI figures out of the UK will provide direction for the Pound. We would expect the figures to ultimately be overshadowed by Brexit news through the day, however.

On Monday, Parliament voted on a number of Brexit alternatives, and yet again, MPs failed to support an alternative to avoid a hard Brexit.

Following Parliament’s failure to deliver a path out of the EU, the only real options for the British PM are a snap election or a 2^nd Referendum.

Each election has seen the Conservative Party’s power dwindle. Could this be the end?

One thing the Tory Party may ultimately agree on could be to save the government and deliver a 2^nd vote on EU membership.

Today’s emergency cabinet meeting to decide the way forward will be the key driver for the Pound.

At the time of writing, the Pound was down 0.25% to $1.3070.

Across the Pond

Economic data due out of the U.S is limited to February durable goods orders. The figures will have an influence on the Dollar and risk sentiment upon release. While the Dollar will find direction from the numbers, core durable goods orders would need to materially disappoint to pin back the bulls.

Risk appetite through the day will likely remain the key driver, with risk on sentiment considered a negative for the Dollar near-term.

At the time of writing, the Dollar Spot Index was up 0.12% to 97.344, with the latest Brexit votes likely to have driven demand for the Greenback.

For the Loonie

It’s a quiet day on the economic calendar. The lack of stats will leave risk sentiment as the key driver ahead of this week’s inventory numbers.

The Loonie was down 0.08% at C$1.3317, against the U.S Dollar, at the time of writing.