A Night of Data Misses in FX

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Market Drivers December 7, 2016
AU GDP Misses
UK MP/IP Miss badly
Nikkei 0.74% Dax 1.45%
Oil $51/bbl
Gold $1173/oz.

Europe and Asia:
AUD AU GDP -0.5% vs. 0.3%
GBP UK IP 0.3% vs. 0.8%
GBP UK MP -0.9% vs. 0.2%

North America:
CAD Rate Decision 10:00

It’s been a night of data misses on FX with both AU and UK economic reports posting very disappointing results, but the pairs saw little long term impact to the news trading in relatively tight ranges for the second night in a row.

In Australia the GDP data came in markedly worse than expected at -0.5% versus 0.3% eyed as the collapse of commodity prices took a big hit on mining and investment. This was only the fourth time in 25 years that the GDP turned negative on a quarterly basis, but most analysts remained relatively sanguine about the prospects of AU economy noting that the strong rebound in commodity prices this quarter should see a snapback in the data.

Still this was a much wider than anticipated miss and showed that the weakness was not only contained to the mining sector as housing was also affected by the slump. Overall the data showed a slowdown in income growth and should those trends persist in Q4, the RBA may have to rethink its neutral policy and once again consider further easing to stimulate growth. Aussie rebounded to .7450 after falling to a low of .7416 in the aftermath of the news but will continue to remain doubly vulnerable to any selloff in commodity prices as traders will be very sensitive to any further weakness in the sector going forward.

In UK the Manufacturing and Industrial Production also came in much weaker than anticipated with the former at -0.9% versus 0.2% eyed while the later was 0.3% versus 0.8% consensus estimate. The ONS noted that once again the weakness came mainly from the oil sector, but it was also widespread, indicating that despite the weaker pound UK industry appears to be struggling as the uncertainties of Brexit outweigh any currency advantage for now. Cable fell through the 1.2600 figure and remained weak into the London mid morning dealing and could test the 1.2550 level as the day proceeds.

In North America today the US calendar is barren but the market will get to listen to BOC at it monthly meeting report. All analysts expect the Canadian central bank to hold its rates steady at 0.5% but traders will listen carefully to the tone of Governor Poloz message. Over the past few months the bank has been generally downbeat about Canada’s prospects, but with oil now above the $50/bbl level and broad array of Canadian data showing upside surprises the BOC may improve its assessment going forward and that could send USDCAD towards the 1.3200 figure as the day proceeds.

Boris Schlossberg
Managing Director

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