EUR and AUD weak on growth concerns
Head of FX Strategy, Saxo Bank Group
Summary: The euro is stumbling ahead of the Q1 GDP print as weak lending data and fresh populist agitation from Italy weigh on the single currency. AUD is also weak ahead of pivotal jobs data that could seal the deal for a coming RBA rate cut.
A couple of interesting tidbits that don’t support the market’s rather complacent stance: first, a speech by Xi Jinping overnight criticized those (implicitly the US) who think they can reform other nations, and second, the story that Trump is considering a blanket ban on Huawei for telecoms in the US.
The big news in the Asian overnight was China’s Industrial Production and Retail Sales data missing expectations for the year-on-year figures by more than a percent. The latter, at +7.2% year-on-year, is the lowest rate since 1999 save for a one-off spike in 2003. Even that rate is hard to accept, given the large absolute drops in car sales over the last few months. Markets took this in stride…
The euro is a shade lower (the euro only moves in shades these days, it seems) after yesterday Italy’s Salvini said he would be happy to ignore EU budget rules until the Italian unemployment rate, currently 10.6%, falls to 5%. Italy’s BTP yields have steadily risen of late in a falling yield environment for safe haven sovereign bonds and the 2-year BTP, at 0.70%, is at its highest yield this year. This noise comes ahead of the EU parliamentary elections next week, where the strength of eurosceptic results could drive further existential concerns. It seems EURCHF has finally woken up to the issue.
Recent EU lending data points to a rising risk of a growth slowdown dead ahead. I tweeted out a chart from Commerzbank pointing to the accelerating of the already cratering rate of lending to non-financial corporations and the household lending rate is dipping into negative territory as well. If export orders don’t pick up, shield your eyes for the coming couple of quarters’ EU growth data.
We’ll run with an AUD chart again as the stakes are high for all AUD crosses over tonights April jobs report, as the Reserve Bank of Australia has intensified the focus on employment data after the most recent policy meeting linking a rate cut decision to the state of the labour market. The market is still on the fence on whether the RBA cuts at the early June meeting, but an ugly report could quickly increase conviction that the RBA caves.
USD – the greenback near the top of the heap, but remains bogged down in a range in most pairs, likely held back by the USDCNY rate cap assumption.
EUR – mounting tactical risks for the euro, which may have a hard time piecing together any significant rally ahead of the EU parliamentary elections. GDP data up this morning.
JPY – maintaining a reasonable bid in the crosses even as risk appetite has improved a bit over the last couple of sessions. Strong safe haven bond markets likely to keep supported.
GBP – sterling suffering risk of a tactical breakdown to probe fresh supports as Brexit is going nowhere fast.
CHF – the now you don’t see it, no you do safe haven status of CHF suddenly in evidence and possibly linked to EU existential risks, EU peripheral spreads, Brexit, more than general risk off on the US-China trade tension theme. The latest EURCHF dip opens up for the range to the big 1.1200 support zone.
AUD – slow motion breakdown in AUD with the key test tonight over the latest April jobs report Down Under. How aggressively can a move extend, however, with the CNY floor in place?
CAD – the latest Canada CPI up today – likely more sensitive to a downside miss as we await a pulse in USDCAD.
NZD – watching for AUDNZD support at some point to prove the point that the chart has structurally turned. AU yield drop will have a very difficult time outpacing NZ yields.
SEK – EURSEK consolidating after the brutal run higher, but the trend remains higher as long as we trade above 10.60-65 and EUR weakness due to weaker growth fears can feed an even weaker SEK.
NOK – NOKSEK is interesting around the 10.00 level as we discussed in a post yesterday.
Upcoming Economic Calendar Highlights (all times GMT)
0900 – Eurozone Q1 GDP
0900 – Eurozone Employment
1230 – Canada Apr. CPI
1230 – US May Empire Manufacturing
1230 – US Apr. Retail Sales
1315 – US Apr. Industrial Production
1400 – US May NAHB Housing Market Index
1415 – ECB’s Coeure to speak
1630 – ECB’s Praet to speak
0130 – Australia Apr. Employment Change / Unemployment Rate
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)