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October 2015

Daily Currency Insight

Published: Tuesday 27 October 2015


The Euro remained soft as German business sentiment among Germany's top executives confirmed a decline in optimism, halting the upward trend seen over the past few months, although the reading beat analysts' forecast- the German economy is proving remarkably resilient in the wake of the Volkswagen scandal. The Bundesbank have been quick to respond by stating the underlying growth trajectory of the German economy remains intact even though its momentum seems to have slowed in the third quarter of this year.

In the UK, September mortgage approvals slipped from the 2015 high in August, although the number of mortgage approvals is 14% higher than a year ago. The approvals remained relatively high despite the slip, with consumer confidence and rising wages allowing customers to take advantage of record low interest rates. The Bank of England Governor Mark Carney has warned about the effects of a rate hike on mortgage holders, noting that households spending more than 40% of income on debt servicing are "vulnerable".

New Zealand's trade deficit hit a 12 month high last month as exports falter and dairy prices remain sour. The deficit was NZ$1.222bn in September, marking the fourth trade shortfall in a row. Total exports fell from NZ$3.7bn in August to NZ$3.69bn, missing estimates at NZ$3.90bn. The NZD has taken this news in its stride, as commodity currencies are generally firmer after The Peoples Bank of China chose to cut the Chinese base rate and the amount of money Chinese banks have to hold as reserves.

Looking ahead, the highlight for today will be the UK GDP preliminary release at 9.30 AM, economists expect the UK economy to grow 0.6% qoq in Q3, slightly lower than than Q2's 0.7%.  Growth in the UK's Main Sector, the service sector, slowed further in September to its lowest rate in nearly two and a half years. However, euphoria surrounding the Rugby World Cup helped boost retail sales to the fastest rate for almost two years, which could add 0.1 percent to GDP. While we may see a benefit in the third quarter it might only be a temporary one and will not necessarily continue all the way to the end of the year.

Currency fluctuation against the USD may be limited today as traders tread water ahead of the FOMC meeting on Wednesday. Fed Member Hilsenrath reported that the Fed will strive to send “clear signals” to the market this week and notes that Yellen in her previous Sept 24th speech, downplayed the connection between unemployment & inflation and commented that the FOMC won’t be raising rates much, if at all, data doesn’t confirm projections. At 12.30 PM we have core durable goods from the US, which is a leading indicator of production and signals confidence in business conditions, which could lead to increased sales further up the supply chain and gains in both hours worked and non-farm payrolls. Followed by US consumer confidence at 3.00 PM

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