In the UK overnight Industrial Production for November was released at -0.7% vs 0.0% expected and Governor Carney rather than being market supportive made a statement indicating that Household Debt in the UK was not at an appropriate level and too high. If you contrast this from Fed Chair Yellen’s typical market approach she remains very confident in her ability to manage the US economy and her statements are very measured for market effect. Governor Carney however stoked rate rise fears in the market in 2015 but the data has just not backed him up since and with no positive news from him the market pushed the GBP down 1.5%.
Oil another big factor for the market to come to grips with dropped to its lowest level since 2003 under $30 and in this environment we are really at the mercy of market forces. Many countries budgets are factoring in $70-$80 oil and at present pricing obviously this can lead to large social unrest. A country such as Iraq who gets most of its money from Oil Sales will be hard pressed to pay salaries and rebuild cities damaged in the fighting. $30 oil will mean bankruptcies in coming months – a panicked Russia as the Ruble drops and many commodity firms desperate to maintain both cash flow and market share.
For the commodity currencies AUD NZD and CAD these all remain weak in the face of continued China concerns, weak oil, weak stock markets and of course concerns that China may be forced to devalue their currency further than they would like. In terms of why this is happening it really comes down to 2 main issues. In trying to control their currency they burn up their foreign exchange reserves which is public information. More importantly large investors are hiring private research firms to travel to China and produce real figures of where they think China Growth really is. From the latest batch of this research rather than the 6.5-6.8% Government Numbers many private forecasters put the number closer to 3%.
In Canada the Finance Minister was asked about the weakening CAD and his comments were that obviously Canadiens were concerned by a falling dollar but the government was sticking to its view of investing in the economy.
Geo-Politics also plays an important role in Foreign Exchange Markets and we still remain on edge for action in several important relationships. North Korea and South Korea, Saudi Arabia and Iran and in Syria with Russia and Turkey. Any changing of present circumstances puts more risk into the market and will push investors into the safe haven USD.
** China trade is tentatively scheduled for release today around midday.
8.00 pm: EU Industrial Production for Nov -0.3
10.00 pm: FOMC Member Rosengren speaks
1.30 am: Crude oil inventories.
2.30 am: Fed Evans speaks
5.00 am : Beige Book
5.00 am : US Budget