US GDP fell short of expectations yesterday and ultimately puts into question the recent optimism emanating from the Federal Reserve. The US dollar softened across the board as the first quarter growth was revised sharply lower to 0.5% q/q annualised from 1.4% previously. The Nasdaq slipped below the 4400 while the Dow retreated to a two-week low.
Shanghai’s Composite and Hang Seng extended their weekly losses as China strengthened the yuan the most since 2005. According to many, the yuan fixing is mostly believed to reflect the dollar’s move rather than a shift in the People’s Bank of China’s (PBoC) monetary policy.
More worse than expected data from Australia is reinforcing speculation that the RBA may decide to cut interest rates in the near term. Hot on the heels of Wednesday’s weak consumer data, PPI fell short on the quarter with a decline of 0.2% versus the expectation for a small rise of 0.2%. Private sector credit also failed to meet consensus.
Oil prices continue to rise. While some of this could be down to expectations that the supply glut is lessening – it’s mostly about the weaker greenback. The Loonie is also benefiting from this renewed upside and as mentioned in previous notes, the CADUSD 80 marker is only a hop, skip and a jump away from present levels.
The yen appreciated further although Japan was closed this Friday. The Bank of Japan’s unexpected decision to remain on hold is still being manifested in the FX space. The unwinding positions, exacerbated by the weakening dollar, now puts the yen close to the 107 support level for the first time since October 2014. The possibility of a further slide to 105.20, the October 2014 low is still on the table.
The euro was preferred to the US dollar and the pound overnight. EURUSD gained good upside momentum and it would seem that Eurozone inflation, GDP and unemployment data are helping to make the case for Euro-bulls. To remain in charge, a further advance to 1.1464, April 12th peak is required. This could possibly see EURUSD make a challenge on the 1.15 level last seen in August 2015 . So far this morning, data from the Eurozone has been fair. French GDP surprised on the upside, ditto Spain’s/ German Retail sales is the main fly in the ointment, falling 1.1% m/m against expectations for a small gain of 0.3% m/m.
Ironically, the first quarter growth in the Eurozone now looks like it will exceed that of the USA. It’s not just monetary policy divergence anymore.