FX News Today
Cleveland Fed hawk Mester saw “a little more downside risk” to the U.S. economy than when the Fed hiked in December in remarks earlier after the NY close, though when pressed about the market sell-off in January, she said “you can read too much into volatility.” That makes it 4 out of 5 Fedspeakers this week mulling greater downside risk, which will help keep the dollar on the defensive. Between NIRP in Japan and easy money promises from the ECB and now a unanimous BoE in favor of steady policy it appears the FX wars are in full swing. USDJPY is near session and one month lows of 116.60 after completely erasing the rate cut surge to 121.68 on Jan-29.
Reserve Bank of Australia said low inflation may provide scope for easier policy, not surprisingly repeating a key line from Governor Stevens’ statement earlier this week that accompanied the lack of change in the 2.00% rate setting. The growth and inflation projections in the quarterly Statement on Monetary Policy were not substantially different from the previous statement released last November. Underlying inflation is expected to remain low over the forecast period. They note that the recent improvement in the labour market was not expected in November, and could be providing information about the economy not apparent in the national GDP figures. Or the recent strength in the labour market will be followed by a pull-back. Meanwhile, China’s growth outlook is pegged as a sizable source of uncertainty for Australia’s outlook. The AUD is adjusting to lower commodity prices, with the weaker currency benefiting export related industries. Separately, retail sales were flat in December after a 0.4% m/m gain in November, undershooting expectations. Sales volumes grew 0.6% in Q4 (q/q, sa) after the 0.5% gain in Q3.
US same store sales dipped 0.5% y/y in January, according to Johnson Redbook, after a 0.9% y/y December gain. Apparel paced the weakness with a 3.0% y/y decline, followed by miscellaneous (-2.0% y/y) and drugs (-1.4% y/y), probably on promotions and price declines. Same store sales excluding drugs were down 0.3% y/y. Discounters outperformed with a 0.7% annual gain, while clubs were unchanged. All stores posted a 1.5% y/y gain last month, versus 2.6% y/y in December. This is another manifestation of the slowdown in momentum over the turn of the year. January retail sales will be reported a week from Friday and we’re projecting a 0.1% headline gain, and a flat ex-auto reading.
Main Macro Events Today
- US Employment: January employment is out today and we expect the headline to reveal a 200k (median 198k) increase for the month. This is below the 292k December increase and the headline faces downside risk from a weaker claims path and deteriorating producer sentiment.
- Canada Employment: We expect employment to rise 10.0k in January (median 5.0k) after the 22.8k gain in December. Of course, momentum was lacking in the economy going into the new year (unless you were an auto dealer), which could restrain job creation. An as-expected gain would be welcome news given what should be a stall out in GDP growth during Q4, but the report is unlikely to significantly alter the views of those calling for a near term rate cut.
- Canada Ivey PMI: The Ivey PMI is expected to improve to a seasonally adjusted 51.0 in January from 49.9 in December. The Ivey PMI saw a three month trailing average of 55.5 in December from 56.8 in November. The 3-month average has been falling since the 58.8 in June of 2015, but remains comfortably inside expansionary territory, consistent with a rebound in GDP during the first half of 2016 depressed in January.
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Chief Market Analyst
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