Euro data positive, NZ economy suffers worse unemployment

The European Services data has been very positive for struggling Eurozone nations, with Spain leading the way after achieving a number not seen since November 2006. A reading of 60.3 is extremely strong, and will provide a massive boost for the Spanish economy in the longer run.

Although Germany’s reading was slightly down at 54.0, it still represents strong expansion. The ECB’s QE program is clearly benefiting the Eurozone as a whole, especially over the last few months as the flow on effects have had a very positive impact in the Southern European countries, bar Greece.

The UK Services PMI also surprised expectations, jumping to 59.5 as the UK largest sector continues to enjoy a rapid pace of growth. Although recent Manufacturing and Construction data has encouraged concerns that the economy might be wobbling, the exceedingly high Services PMI shows this sector remains in demand. The Pound is behaving quietly, with this being due to the UK election tomorrow. This appears set to be one of the closest elections in history, and the Pound may continue to trade quietly until the uncertainty surrounding the election result begins to fade.

The NZ dollar has taken a sharp dive in the wake of worse than expected unemployment data, as it came in at 5.8%. The market response was rapid, but at the same time the lift in unemployment was due to a large increase in the participation rate as migration was on the increase, boosting the number of people joining the working sector.

I am now looking at the Reserve Bank of New Zealand for their next move, especially on the OCR front. It looks possible that we may see rate cuts this year unless the economic situation improves, but with falling commodity prices and a strong NZD it’s unlikely the economic landscape will change much. Either way, bearish momentum is likely to increase on the NZDUSD, and we could see a strong test of 0.72 cent area at this stage which has been very strong in previous months.

Aussie retail sales faltered further as the domestic economy at home in Australia fails to find any sort of reprieve. The weak retail sales announcement failed to impact the AUDUSD in a bearish direction, mainly because iron ore prices rallying to a six-week high has provided a small ray of sunshine for the Australian economy.

This Iron ore rally has led to further rises in the AUDUSD which in turn will be giving the RBA added headaches, and may lead to the Reserve Bank of Australia looking at different monetary policy options rather than just cutting rates.

The Oil (WTI) market has surprised many as it climbed to 61.80 on the back of US dollar weakness, and as investors look to jump back in on bullish momentum. I am quite surprised by how quickly investors have taken back to oil markets, and if anything we may see further rises up $65.00 dollars a barrel.

Gurr is a market analyst at FXTM

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