A relatively quiet session which is hardly surprising considering that this is the last trading day of the week, month and quarter. The US Dollar was weaker -vs- the European currencies and stronger -vs- the Japanese unit, Aussie and Kiwi with position squaring likely being the prevalent theme in the markets. Gold continues its decline as it eyes the $1160 level.
New Zealand building permits fell to +1.3% from the +18.5% in the preceding month but was above the -3.9% estimates. Australian private sector credit came out in line with market expectations at +0.3%. There was a raft of second tier economic data releases out of Japan. Household spending fell to -1.6% which was lower than both the +1.4% that was expected and the +1.5% reading of the prior month. National Core CPI came out at 0.0% matching expectations and higher than last month's -0.4%. Analysts were expecting the unemployment rate to drop to +4.0% but it remained unchanged at +4.1%. Retail sales rose to +0.8% beating the +0.1% forecast. Industrial production came out at +2.0%, much higher than the +0.2% that the market was expecting.
2nd Quarter recap
For the quarter the US unit strengthened -vs- the AUD, NZD & YEN but was slightly weaker -vs- the EUR and GBP. With the exception of its performance against the YEN, this was the opposite of what happened in the first quarter where it rose -vs- the EUR, YEN, GBP and was relatively flat versus the antipodean (AUD & NZD) currencies. The greenback was strongest against the AUD appreciating by +11.12% while it was weakest -vs- the EUR, falling by -1.96%.
The catalysts that gave the dollar a bid in the first quarter, namely the simmering economic and political issues that continue to threaten the Euro-zone, underwhelming Japanese and British economies that were in dire need of further stimulus to spur domestic growth, are still quite relevant. What changed in the second quarter was China. The specter of the worlds' second largest economy experiencing sluggish growth was enough to unnerve the antipodean economies and, by proxy, send their currencies into a tailspin.
The third quarter begins with the tapering issue foremost on the markets' mind. The fact that the Federal Reserve is even contemplating reducing the stimulus is proof that they feel that the US economy has turned the proverbial corner. This does not mean that they are wedded to this, just that IF the economy continues its upward trend then they will begin the process of tapering their asset purchases. The key question is how will the markets react if this does indeed come to fruition. Theoretically the US Dollar should continue to strengthen -vs- the YEN if for no other reason than the fact that the yield differentials should be in its favor given that Japan seems committed to its stimulus program. The rest would depend on the performance of the US and Chinese economies. All in all the third quarter is shaping up to be one that could be quite pivotal in clarifying the future prospects of the global economy.