Richard Franulovich, the head of FX strategy at Westpac, notes that global growth appears to be stabilizing at the moment, and AUD and EUR have the strongest sensitivity to global growth.

• High-frequency data suggest that the global economy may be stabilizing. China’s credit aggregates and industrial production data for March were both notably stronger than expected, US retail sales surged in March, while the April German ZEW expectations sub-index finally returned to positive territory (i.e. optimists outweigh pessimists).
• A composite leading index for the global economy based on the OECD’s leading indicators is also stabilizing.
• The country breakdown of the OECD leading indicators also highlights that the recovery in the global leading index is very lopsided at this stage, with emerging markets showing strong gains while the major developed economies are yet to show any meaningful recovery signal.
• Regardless, some welcome stability in the global growth picture appears to be emerging with potentially important implications for FX markets if sustained.
• The biggest surprise is that EUR has morphed into a very cyclically sensitive currency in recent years, showing the second highest correlation with our composite global growth index among the G10. That is arguably a function of the region’s heavy dependence on external trade and the ratcheting up in global trade tensions in the last two years.