Economic Data and FED Chair Powell Put the Pound and Greenback in the Spotlight
Earlier in the Day:
It was a busy start to the day on the economic calendar this morning. The Aussie Dollar and Kiwi Dollar were in action early on, with the Bank of Japan and Japanese Yen in focus later this morning.
In spite of the busy start to the day, the economic calendar took a back seat as the markets reacted to the FED move on Monday. The FED’s announcement to buy individual corporate bonds led to a Monday rebound in the U.S equity markets. This continued through the early part of the Asian session, which also supported the Aussie and Kiwi Dollar.
Looking at the latest coronavirus numbers.
On Monday, the number of new coronavirus cases rose by 115,910 to 8,100,342. On Sunday, the number of new cases had risen by 124,839. The daily increase was lower than Sunday’s rise while up from 102,703 new cases from the previous Monday.
Germany, Italy, and Spain reported 855 new cases on Monday, which was down from 909 new cases on Sunday. On the previous Monday, 783 new cases had been reported.
From the U.S, the total number of cases rose by 19,412 to 2,181,556 on Monday. On Sunday, the total number of cases had risen by 19,920. On Monday, 8th June, a total of 18,206 new cases had been reported.
For the Kiwi Dollar
Consumer sentiment weakened in the 2nd quarter, with the Westpac consumer sentiment index falling from 104.2 to 97.2. The downside was attributed to the impact of the COVID-19 pandemic on the economy. In the 1st quarter, the Index had fallen from 109.9 to 104.2.
According to the latest Westpac report,
- As a result of a deep recession, stemming from the COVID-19 pandemic, households reined in spending plans
- The Present Conditions Index fell from 103.4 to 94.1, following a fall from 110.1 to 103.4 in the 1st quarter. Sentiment towards the economic outlook also softened, with the Expected Conditions Index falling from 104.7 to 99.3. In the 1st quarter, the Index had fallen from 109.8 to 104.7. Both fell further below their long-run averages of 108.5 and 112.5 respectively.
Looking at the sub-indexes, the declines were considered modest, though an expected rise in unemployment could lead to heavier losses.
- The 1-year economic outlook sub-index slid from -15.4 to -28.3, following a fall from 4.2 to -15.4 in the 1st quarter. The long-run average stood at -2.8.
- The expected financial situation sub-index fell from 19.9 to 14.7, reversing a rise from 15.5 to 19.9 in the 1st quarter. In spite of the fall, it remained well above the long-run average of 11.4.
- The ‘Good time to Buy’ Index declined from 8.4 to 1.5. In the 1st quarter, the Index had fallen from 21.1 to 8.4.
- Looking further down the track, the 5-year economic outlook sub-index increased from 9.7 to 11.6, after holding steady in the 1st quarter. Despite the rise, however, the sub-index sits well below its long-run average of 29.0.
The Kiwi Dollar moved from $0.64737 to $0.64676 upon release of the figures. At the time of writing, the Kiwi Dollar was up by 0.12% to $0.6482.
For the Aussie Dollar
House prices rose by 1.6% in the 1st quarter, following a 3.9% increase in the 4th quarter. Economists had forecast a 2.7% rise.
The main driver this morning, however, was the RBA meeting minutes.
Salient points from the minutes included:
- Members recognized that the Australian economy was experiencing the biggest contraction since the 1930s.
- There was a marked increase in job losses or zero-hours worked, leading to a material weakening in household spending.
- In spite of this, it was possible that the downturn would be shallower than earlier anticipated.
- The rate of new infections had declined significantly, leading to some easing of restrictions earlier than expected.
- Uncertainty remained, however, and the pandemic was likely to have long-lasting effects on the economy.
- Members agreed that Bank policy was working broadly as expected, lowering funding costs, stabilizing financial conditions, and supporting the economy.
- The yield target was expected to remain in place until there was progress towards the goals for full employment and inflation.
- A combination of substantial, coordinated, and unprecedented easing of fiscal and monetary policy was helping the economy.
The Aussie Dollar moved from $0.69418 to $0.69399 upon release of the figures and minutes. At the time of writing, the Aussie Dollar was up by 0.32% to $0.6941.
For the Japanese Yen
It will be all eyes on the Bank of Japan, its monetary policy decision, and Governor Kuroda’s press conference.
At the time of writing, the Japanese Yen was up by 0.02% to ¥107.31 against the U.S Dollar.
The Day Ahead:
For the EUR
It’s a relatively busy day ahead on the economic calendar Key stats include ZEW economic sentiment figures from Germany and the Eurozone for June. Later in the day, 1st quarter wage growth numbers for the Eurozone are also due out.
We would expect the markets to brush aside wage growth numbers. Economic sentiment figures for both, Germany and the Eurozone will provide direction, however.
Following the EU’s budget and COVID-19 recovery plans, we may see a 3rd consecutive monthly rise. Expect any pullback to pressure the EUR.
Away from the economic calendar, COVID-19, and FED Chair Powell will be key areas of focus on the day.
At the time of writing, the EUR was up by 0.06% to $1.1330.
For the Pound
It’s also a busy day ahead on the economic calendar. Key stats include April’s unemployment rate and May’s claimant counts. Average wage growth and employment change figures for April are also due out.
We would expect May’s claimant count figure to have the greatest impact on the day. The UK was in full lockdown mode in April and only began easing measures in earnest through late May.
Following last week’s GDP numbers and with the BoE in action this week, the Pound will be sensitive to the numbers.
On the geopolitical front, expect chatter on Brexit to also garner plenty of attention.
At the time of writing, the Pound was up by 0.20% to $1.2630.
Across the Pond
It’s a busy day ahead on the U.S economic calendar. Key stats include May retail sales and industrial production figures.
With the U.S government easing lockdown measures through May, the markets will be looking for a pickup in spending. Consumer spending and a pickup in service sector activity is key to the U.S economic recovery. Disappointing numbers would overshadow any upbeat industrial production figures.
We will expect April’s business inventory numbers, also due out later today, to have a muted impact.
While the stats will influence, FED Chair Powell’s testimony to Congress that proceeds the retail sales figures will be the main event.
It’s hard to imagine the FED Chair to material shift from last week’s FOMC press conference, which should test market resilience. The talk of unwavering support, however, would ease the pain.
At the time of writing, the Dollar Spot Index was down by 0.13% to 96.585.
For the Loonie
It’s a relatively quiet day ahead on the economic calendar. April’s foreign securities purchase figures are due out later this afternoon.
We’re not expecting the numbers to influence, however, with COVID-19 news updates and FED Chair Powell the key drivers.
At the time of writing, the Loonie was up by 0.21% to C$1.3543 against the U.S Dollar.
For a look at all of today’s economic events, check out our economic calendar.