Slow global growth the new normal after OECD lowers forecast
Global stocks were mixed today as traders continued to worry about trade, and about US and EU relations. Today, a report by the Financial Times said that Italy was becoming the first EU country to formally endorse China’s Belt and Road Initiative. The country will formally endorse the project this month when China’s Xi Jinping will visit Italy. The move has alarmed Brussels while US has condemned it. The BRI is a Chinese strategy to provide funding to countries in Asia, Africa, and Europe for the construction of strategic infrastructure. The loans have been criticized by the United States, which believes that they impose massive debts on economies for little return.
The Australian dollar declined sharply today after data showed that the economy grew at a slower pace than earlier expected. In the fourth quarter, the economy expanded by 2.3%, which was lower than the expected 2.5%. On a QoQ basis, the economy grew by 0.2%, which was lower than the expected 0.5%. The slowdown in the economy is attributed to a number of factors like the sluggish growth in the Chinese economy, the ongoing drought and low capital spending by companies.
Slow economic growth has turned out to be the new normal. Yesterday, China announced that it was lowering the economic forecast for the year. Last month, IMF, BOE, RBA and ECB all lowered the forecast for the year. Today, the Organization for Economic Cooperation and Development (OECD) cut the global growth and forecasted that things could turn worse. This was the second time the organization was lowering the guidance since the last quarter of 2018. However, there are signs that the economy is stabilizing. The global PMI increased in February, which was the first increase in three months. Talks between US and China are also at an advanced level.
In the United States, ADP released the non-farm payrolls for February. The numbers showed that the economy added more than 183K jobs in the month. This was slightly lower than the 189K that traders were expecting. This number was released two days before the BLS is expected to release official numbers. In the past, these numbers have differed by a large margin. On trade, the trade deficit increased to $59.8 billion in February. This was caused by an increase in imports and a decrease in exports. Imports increased to $264 billion while exports decreased to $205 billion. This is a blow to Trump, who has placed tariffs with the goal of narrowing the deficit.
The Canadian dollar declined against the US dollar ahead of the Bank of Canada (BOC) statement later today. The central bank is expected to leave rates unchanged at 1.75% as the country prepares for an election this year. Before the decision is released, the country released trade data that missed the consensus estimates. In December, exports reduced from C$48.2 billion to C$46.8 billion while imports increased slightly from C$50.1 billion to C$50.90 billion.
The USD/CAD pair continued to gain today as traders waited for the decision by the BOC. The pair reached a high of 1.3390, which is the highest level since the first week of January. The pair has been gaining since the beginning of this month. On the hourly chart, the pair’s price is currently above the 21-day and 42-day EMAs while the RSI rose sharply to the overbought level of 74. While the pair could continue moving up, there is a likelihood that the pair will fall after the BOC decision. If it does, it will fall to the 38.2% Fibonacci Retracement level of 1.3290.
The EUR/USD pair was searching for direction after weak trade numbers from the US and ahead of tomorrow’s ECB interest rates decision. The pair touched an intraday low of 1.1285 and then moved back to the day’s open. On the chart below, the pair has been consolidating as evidenced by the narrow Bollinger Bands. The RSI has moved slightly up to the current level of 50. The pair will likely remain along these levels ahead of the ECB’s decision.
The Australian dollar declined sharply against the USD after weak economic data. The pair reached a low of 0.7020, which is the lowest level since the first week of January. This price has broken past the important support of 0.7050 on the four-hour chart below. The price is also below the 21-day and 42-day EMAs and is slightly below the 61.8% Fibonacci Retracement level. There is a likelihood that the pair will continue moving lower to the 0.7000 level, which is also the 50% Fibonacci level.