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August 2016

NZ data lets NZD weaken a little but it remains strong

Published: Friday 12 August 2016

  • NZ data lets NZD weaken a little but it remains strong
  • China still slowing - putting pressure on supplier nations
  • EU data dominates today
  • US retail sales likely to have slowed

What a couple Laura Trott and Jason Kenny are. In the space of 90 minutes, Laura and her team (Joanna Rowsell Shand, Elinor Barker and Katie Archibald) reclaimed the World Record in their heat and Jason, along with Philip Hindes and Callum Skinner, won gold and claimed the Olympic record in the team pursuit final. I wonder if making breakfast or mowing the lawn is as competitive in the Kenny household.
We had mixed data from New Zealand overnight. Retail sales were up 2.3%. That’s the largest increase since the end of 2006. However, the manufacturing sector slowed in July. There was still growth with the index reading 57.6 (above the 50 level that marks the divide between growth and contraction). Having strengthened in spite of the RBNZ’s interest rate cut yesterday, the NZ Dollar has weakened a tad but remains around the NZ$1.80 level against the Pound. This is a great opportunity for GBP buyers but sellers may need to bide their time at the moment.
That slight NZD weakness will have been helped by the news that Chinese industrial production, urban investment and retail sales all slowed in July. That news was released overnight. All eyes will now be on anything which hints at the Q3 growth data. 6.7% is the growth rate for the Chinese economy for the first two quarters of the year; does this mean we will see further slowing? That would definitely weaken the currencies of the nations that supply China. Those include Australia, New Zealand, Japan and a number of other Asian nations. 
We will get Eurozone industrial production data this morning. And the forecasters seem to believe the number will be up around 0.5% for the month. I’m no economist but I think that might be a little optimistic. The Euro will strengthen if the forecasters have done their sums right but anything below 0.4% for the month will weaken the EUR. We will also get the last calculation of Q2 GDP growth for the Eurozone this morning. It is widely expected that it will be in line with the previous estimate of 0.3% but there is always scope for an adjustment; beware.
This afternoon brings US retail sales; a crucial aspect of US economic performance and something the Federal Reserve watches with hawk eyes. We expect the growth rate to have slowed to 0.4% for the month and that might ease the pressure as far as the GBPUSD rate is concerned. The USD is heavily overbought right now, so there is plenty of room for traders to take some profit and allow it to weaken a tad.
I’ve always had massive respect for the Fijian rugby teams, as I think all rugby fans do. For such a tiny nation to produce so many world class players is a phenomenon. Seeing the way they beat the GB sevens team so convincingly was a sight to behold. They richly deserved the gold medals that each player knelt to receive from Princess Anne. My respect grows ever stronger.
Have a great weekend everyone and get ready for the heatwave if you are in the UK.

The NHS rowing team

A large NHS hospital and a Japanese drugs company decided to have a competitive rowing race on the river Thames. Both teams practiced long and hard to reach their peak performance. On the big day, they were as ready as they could be. The Japanese team won by six boat lengths.
Afterwards the NHS team became very discouraged by the loss and morale sagged.  Senior management decided that the reason for the crushing defeat had to be found and a project team was set up to investigate the problem and recommend appropriate action. Consultants were brought in to interview where everyone involved could see what lessons could be learned from the result. In all they spent £600,000 on the research and a meeting was called for all of the departmental heads to meet to discuss the outcome. A conference room was arranged and a luncheon laid on.
When the management performance consultant, in charge of the report stood to speak, he outlined the methodology for the research, ran through a 32-page PowerPoint presentation to explain the findings and then reached the conclusion.
“The problem,” he said before pausing for dramatic impact,” is that the Japanese employed a diametrically opposite strategy to us. They had eight people rowing, and only one person shouting instructions and steering.”

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
GBP 09:30 UK: Construction output m/m -2.1% 0.9%
EUR 10:00 EU: Flash GDP q/q 0.3% 0.3%
USD 13:30 US: Core retail sales m/m 0.7% 0.2%
USD 13:30 US: PPI m/m 0.5% 0.1%
USD 13:30 US: Retail sales m/m 0.6% 0.4%
USD 13:30 US: Core PPI m/m 0.2% 0.4%
USD 15:00 US: Prelim UoM consumer sentiment 90.0 91.5

FX Research by David Johnson

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