Are we on a USD rate rise countdown?

The Federal Reserve Chair, Yellen, has a speech booked at the Executives Club of Chicago on Friday 3rd March at 6pm GMT.

The lady's got power
The lady’s got power

Seats will be going for a bomb as everyone wants to know what’s on her mind. With less than two weeks to a possible rate rise when she speaks, traders will weight her words heavily. As the chair of the central bank she has more power over short term interest rates than anyone else, even Trump. This means she has enormous power over the value of the currency.

TMI in the PMIs?

This week we start a new month and this means we get an insight into the views of purchase managers across the globe. A number of indexes reveal the state of their minds in construction, manufacturing, and services.

Can there ever be too much information (TMI) about the PMIs (purchase manager indexes)?

tmi-cat

As Purchase Managers have a good insight into business conditions such as inventories, employment, prices, new orders, supplier deliveries, and production, they are well placed to give a good view of the country’s economic health.

China
Caixin Manufacturing PMI was 51 last month with a forecast 50.9 on Wednesday 1st March. Anything over 50 indicates a positive growth environment, while below 50 suggests contraction.

United Kingdom
Manufacturing PMI is out on Wednesday 1st March at 9.30am GMT: last month was 55.9 and a slight drop to 55.7 is indicated. This is still strongly above the 50.0 line.

Construction PMI is out on Thursday 2nd March also at 9.30am GMT: last month dropped two points to 52.2 and things look about the same (52.1) according to pundits predicting Thursday’s figures.

Services PMI is out on Friday 3rd March at 9.30am GMT: a slight dip is forecast from 54.5 to 54.2.

United States
ISM Manufacturing PMI 
at 3pm GMT on Wednesday 1st March is looking positive with a steady nudge upwards from 56.0 to 56.1 showing pundits expect businesses are feeling good about life.

ISM Non-Manufacturing PMI at 3pm GMT on Friday 3rd March has the same curve going from 56.5 to 56.6. This may be good for the economy but traders are more likely to react to Yellen’s speech scheduled for 6pm GMT.

 

After 25 years is Australia sinking?

a sinking feeling – GIPHY

Can Australia escape recession or will it break its 25 run of growth? Two consecutive quarters of contraction would be bad news for AUD against USD but, if the Aussie economy can claw back some sort of growth in the fourth quarter, we could see a rise. Forecasts suggest a return to growth with a positive 0.7%. Maybe. Maybe not.

Markets seem bullish despite the surprising set back of last quarter’s -0.5% GDP. Other economic indicators suggest things aren’t half bad. Just look at the recent business and consumer confidence levels. Private Capital Expenditure was down, but the RBA Governor seems to have a steady hand on the tiller as he negotiates the tightrope the Australian economy walks.

On the one hand, a frankly enormous trade surplus, growing confidence and a brighter Asian outlook suggest things are looking up. But the Australian dollar has always been buffeted by the USD and China. If China looks good, so does AUD, if USD is gaining, we can expect a fall for AUD. Some traders work on the facts but these relationships are at the forefront for others.

Whatever happens, there will be movement for AUD this week, especially around 12.30am GMT Tuesday 28th February when the fourth quarter GDP is announced. But keep it in mind during USD events too.

USD looking for positive signs from Monday 27th February

Last week’s FOMC meeting minutes seems to have drained the dollar of its drive as it retreated against all major pairs when the minutes were released.

even the strongest get spooked – GIPHY

Committee members indicated a rise will happen ‘fairly soon,’ but many in the markets appear to have taken this to mean not in March. However, some on the committee are saying March 15th is still on the cards. Confused? You will be. It’s a bit like at the end of the card game when everyone is waiting to see who has the winning hand and who was bluffing.

One such give-away twitch could be the three key US data released on Monday and Tuesday (27th-28th) as traders will be looking for other signs of economic growth and inflation that might prompt a rate move.

bluffing

1.30pm GMT on Monday 27th sees the US monthly Core Durable Goods Orders figures revealed. Manufacturing purchase orders are good indicator of economic health but they can change dramatically from one month to the next. A 0.5% increase in December was released on 27th January. An increase on this would be good for the currency, but some expect January figures to be weak as the economy was waiting to see what Trump would do.

1.30pm GMT on Tuesday 28th gives us the Preliminary GDP figures for the last quarter of 2016. Despite its name, this is actually the second data released. The Advance data came out saying 1.9% so higher than this would be seen positively for a rate rise.

3pm GMT on Tuesday 28th has the latest Consumer Confidence index numbers. This has been rising a little unsteadily since post-crash in February 2009 when it bottomed out at 25. Currently standing at 111.8 it hasn’t really dipped since October 2016 (98.7). As spending accounts for the majority of economic activity, their view of the future is critical. Now we have Trump’s policies taking shape, it will be interesting to see how far popular sentiment will carry the markets.

Second double whammy for AUD Thursday 23rd

momentum in action – GIPHY

Tuesday looked like an interesting day for AUD markets with two red flag events. Thursday 23rd February keeps up that momentum with two more.

12.30am Thursday gives us an intriguing insight into economic health in Australia when the quarterly Private Capital Expenditure figures are released. This is the change in the total inflation-adjusted value of new capital expenditures made by private businesses, and when businesses invest this suggests future increases in employment, spending and earnings. On the other hand, when investment levels drop, it’s a sign the economy could be contracting. Pundits are seeing a big rise from -4.0% to -0.4% suggesting things could be looking up Down Under.

To avoid confusion
To avoid confusion

10.30pm on Thursday finds RBA Governor Lowe testifying before the House of Representatives Committtee on Economics. As the guy in charge of setting short-term interest rates what he says affect the value of the currency. Traders will be scrutinizing his every word and the currency could take a ride. The cash rate stands at 1.50% and was last assessed on 7th February so not many will be expecting a change in the short-term. But any clues he gives in the medium to long term will be reacted to and priced in.

US economy under the microscope 22nd Feb

 

via GIPHY

At 7pm on Wednesday 22nd February the Federal Open Market Committee (FOMC) reveals the detailed discussions they had in their most recent meeting. They are the body which decides when interest rates change in the States, so traders are always keen to get insights into what might influence their decisions. With a President whose companies have declared bankruptcy a number of times, and the recent ripping up of international trade agreements, this is a discussion many are eagerly looking forward to learning about.

A rise seems almost certain this year. It’s a question of when. Yellen said recently that a rise could be seen ‘relatively soon’. This might be the result of Trump’s administration adding economic uncertainty with the sweeping changes they have implemented across many areas of society. In December she, in fact, predicted three rises for 2017 and, with the next meeting is on March 15th and 16th, traders will factor this in to their interpretation of Wednesday’s minutes.

Too many alternatives in oil

Moby doing smart-casual
Moby doing smart-casual

Crude Oil Inventories is out on Thursday 23rd February, not its usual Wednesday, this week at 4pm GMT. And this week oil doesn’t seem like it is usual at all.

The Internet has been a storm of conspiracy theories over the relationship between Russia and Trump’s team with many theorists putting it all down to the control of oil. The loudest and, for some, the most authentic voice out there, is Moby. No, he’s not an intelligence agent, expert in the oil industry or politician with access to the inner workings of international government. He is an award-winning musician, bona fide vegan, and a general megaphone-toting proponent of the rights of the underdog, who hasn’t quite understood the whole smart-casual thing.

If the conspiracies are true and the US lifts sanctions on Russia, this will have a major impact on oil markets. Currently, the situation with Ukraine means Russia has major limitations on its oil field exports, so if sanctions are dropped Russia could flood the market. While OPEC are cutting production and the US is holding millions of barrels per day more than anticipated (last week was 9.5M against a predicted 3.7M), this could change the playing field for oil traders dramatically. Be ready for a pronouncement from the White House. After all, look at Moby’s credentials.

unexpected stormy action – GIPHY

Is there any chance of a UK turn around? Wednesday 22nd

via GIPHY

Inflation is at its highest since June 2014 and there is a sizeable camp that sees the pound falling further against the dollar. Others say manufacturing strength at the end of 2016 and improved employment are a sign things could be turning around.

On Wednesday 22nd at 9.30am GMT the Office for National Statistics releases the Second Estimate GDP for the United Kingdom. As the most wide-reaching measure of economic activity, GDP changes have a significant impact on the currency. The forecast is for no change from the Preliminary results (0.6%), but wobbles about Brexit may be starting to make an impact.

Pundits say the domestic situation isn’t looking great for the pound and households may face a tough 2017. Looking back at the last quarter of 2016 through the GDP lens could give traders a good idea of what tough means.

Whichever way your play goes, the markets are sure to move on the GDP indexes this week.

Banking on Australia this week

12.30am GMT Tuesday morning – or is that Monday night – reveals the Reserve Bank of Australia’s thoughts on the economic conditions affecting interest rates in the Monetary Policy Meeting Minutes. With the trans-Pacific US deal dead in the dust, the news may not be great and Australia is looking elsewhere for someone to save the day.

Liberal MP Justin Trudeau takes part in a weigh-in for a upcoming boxing match against Conservative Senator Patrick Brazeau Wednesday March 28, 2012, in Ottawa. The pair will meet this Saturday night where they will to go three rounds in a charity boxing match for cancer research. THE CANADIAN PRESS/Fred Chartrand
Canada’s PM back in the day THE CANADIAN PRESS/Fred Chartrand

Could Canada step in and fill the vacuum? On Tuesday 21st Philip Lowe (RBA Governor) is talking to the Australian-Canadian Economic Leadership forum in Sydney  at 9.30pm GMT and I wonder if Trudeau’s recent form could get people thinking they’ve been talking to the wrong North American country. Either which way, Tuesday looks set to give us lots of action on AUD pairs.

screen-shot-2017-02-19-at-21-03-27

Is Germany saving the Euro?

EU calling Germany via GIPHY

The European Union is facing a major existential crisis with elections in the Netherlands, Germany and France this year complicated by a rise across the region in nationalistic right-wing parties. Alongside Brexit and the financial difficulties in Greece and Italy, this is causing ructions for its currency – the EURO. But among the mayhem there is a shining light.

Germany.

Last month’s manufacturing high looks set to be followed by a glowing performance in the country’s GDP on Tuesday 14th at 7am GMT. Forecasts suggest growth rising from 0.2% to 0.5% and if that proves true traders are likely to take a more positive stance on the currency.