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Foreign Exchange Market Update

January 18, 2017

Indicative Interbank spot sell rates only as of 9:00 AM PST.

USD/CNY----6.8430 (onshore)
United States (US) Applications for U.S. mortgages to buy a home rose to a six-month high last week as mortgage rates retreated further from more than two-year highs. Seasonally adjusted measure on applications for mortgages for home purchase, a proxy on future home sales, rose 6.1% to 241.9 in the week ended Jan. 6. Interest rates on 30-year, fixed-rate conforming mortgages, the most widely held type of U.S. home loan, averaged 4.32%, lower than the prior week's 4.39%. On another note, Consumer Price Index rose 0.3% last month after a 0.2% gain in November. In the 12 months through December, the CPI increased 2.1%, the biggest year-on-year rise since June 2014. The CPI rose 1.7% in the year to November. The CPI increased 2.1% in 2016, up from a gain of 0.7% in 2015. Also on another note, U.S. industrial output rose at the fastest pace in more than two years in December as activity surged at utilities and manufacturers inched ahead. Industrial production jumped 0.8% from a month earlier, the biggest increase since November 2014. Capacity use, a measure of slack in the economy, increased 0.6 percentage point to 75.5%, in line with estimates.
Australia’s dollar traded at 75.38 U.S. cents at 11:12 am PST and New Zealand dollar traded at 71.67 U.S. cents. Consumer confidence in Australia inched slightly higher in January - rising 0.1% on month to a score of 97.4. That follows the 3.9% contraction in December to a score of 97.3. The small gain suggests that the recent increase in employment is having only a marginal effect on the economic outlook, Westpac said. On another note, Non-resident holdings of New Zealand bonds amounted to 63.2% of the market in December, official data showed. That was only slightly below November’s 63.6% level. The country offers investors a developed market with the relatively rare combination of high credit ratings and a stable outlook. Moreover, even at a record low of 1.75% for the Official Cash Rate benchmark, its interest rates are also relatively tempting at a time when other developed economies have cut their own to the bone.
Euro traded at 1.0670 against USD at 11:12 am PST. The final German consumer prices data confirmed provisional data that prices rose 0.7% in December. The annual rate was also confirmed at 1.7% and the strongest rate since July 2013 with both figures in line with market expectations. The annual average increase in prices was 0.5% from 0.3% in 2015. The overall inflation rate for the goods sector increased to 1.8% from 0.5% previously. On another note, the final reading for the Eurozone December CPI inflation was in line with the flash estimate released. Consumer prices rose 0.5% on the month with the annual inflation rate rising to 1.1% from 0.6% previously and compared with a rate of 0.2% in December 2015. This was the highest annual inflation rate since October 2013. Underlying prices rose 0.4% on the month with the core annual rate increasing to 0.9% from 0.8%, unchanged from the reading in December 2015.
British Pound exchange rate is 1.2294 against USD at 11:12 am PST. UK’s official jobless rate stayed unchanged at 4.8% in November, stuck at the lowest since Q3 2005, while, the claimant count dropped unexpectedly last month. The number of people claiming jobless benefits dropped sharply by 10.1k in December from 1.3k claim seekers seen previously. The claimant count rate remained flat at 2.3% in the last month. Wage growth, excluding bonuses bettered expectations, coming in at 2.7% versus a revised 2.6% booked previously, while the gauge including bonuses also rose above expectations at 2.8% 3m y/y versus 2.5% last (revised higher). Employment change for December dropped by 9k vs -35k expected and -6k prior.
Canadian dollar traded at 1.3226 per USD at 11:12 am PST. The Bank of Canada is widely expected to keep its key interest rate at 0.5% this morning in its first interest rate decision of 2017 — but uncertainty over the future of the global economy after the inauguration of Donald Trump will likely complicate the central bank's ability to make policy decisions in the near future. In its last policy report, released before Trump was elected as the 45th president of the United States, the Bank of Canada was already warning that "heightened political uncertainty and rising protectionist sentiment" could pose a threat to global economic growth. A poor outlook for Canadian exports, and the introduction of mortgage rules that could possibly slow down Canadian home sales were also seen as risks to the Canadian economy at that time — risks that could have bolstered the case for another cut to interest rates.
Onshore Chinese yuan traded at 6.8430 per USD at 11:12 am PST and offshore Chinese yuan traded at 6.8341 per USD. China home prices increased last month in the fewest cities since January last year, signaling property curbs to deflate a potential housing bubble are taking effect. New-home prices, excluding government-subsidized housing, gained last month in 46 of the 70 cities tracked by the government, compared with 55 in November. Prices dropped in four cities, in line with a month earlier. They were unchanged in 20 cities. China’s government is encouraging city-specific policies to address a two-speed property market, with some big cities in the grip of a housing bubble while smaller cities struggle to clear a glut of unsold properties. Since December, local governments have stepped up buying restrictions in Zhengzhou, Wuhan and Xi’an, and further raised down-payment requirements for first and second homes in Tianjin. New-home prices in Shenzhen, the nation’s hottest market early last year, fell 0.4% in December from November, the third straight monthly decline, the data showed. Prices in Beijing and Shanghai dropped 0.1 and 0.2% respectively, after snapping a 20-month streak of gains in November. Values in Guangzhou added 0.7%.
This market update is prepared by Cathay Bank for informational purposes only and does not constitute any form of legal, tax or investment advice, nor should it be considered an assurance or guarantee of future exchange rate movements or trends. This information is provided without regard to the specific objectives, financial situations or needs of any recipient. Cathay Bank does not make any representations or warranties about the accuracy, completeness or adequacy of this market update.




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