Daily Currency Update

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Last week recap

BY VANI KOLLURI

Traded lower last week as the RBA left interest rates unchanged with mixed economic numbers from both countries. The rate began the week selling off after making its weekly high of 0.7694 on Monday after Australian Building Approvals declined -5.6% m/m versus an expectation of -1.2%. The pair declined sharply on Tuesday after the RBA left its benchmark Cash Rate unchanged at 1.50% as was widely anticipated. In his Statement on the Monetary Policy release, Governor Philip Lowe noted that, “The various forward-looking indicators point to continued growth in employment over the period ahead. Wage growth remains low, however, and this is likely to continue for a while yet. Inflation is expected to increase gradually as the economy strengthens. The outlook continues to be supported by the low level of interest rates. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.” Also, Australian Retail Sales, which increased by +0.6% m/m versus +0.2% anticipated. The rate then made its weekly low of 0.7570 on Wednesday after a somewhat hawkish FOMC Meeting Minutes. The pair continued under pressure on Thursday despite the Australian Trade Balance, which showed a surplus of +2.47B compared to an expected +1.00B. Friday saw the rate recover some of its losses as the United States reported lower than expected NFP and earnings numbers. AUD/USD closed at 0.7598, with a loss of -1.1% for the week.  

Lost ground last week as the UK reported mostly disappointing economic numbers. Cable began the week selling off after making its weekly high of 1.3021 on Monday after UK Manufacturing PMI printed at 54.3 compared to an expected reading of 56.4. Also, at a press conference in London, BOE Governor Mark Carney said that, “We have fixed the issues that caused the last crisis. They were fundamental and deep-seated, which is why it was such a major job.” The rate continued lower on Tuesday after UK Construction PMI printed at 54.8 versus an expectation of 55.0. On Wednesday, Cable consolidated at a slightly lower level after UK Services PMI printed at 53.4 versus an expectation of 53.6. Thursday saw Cable gain ground after lower than expected U.S. ADP Non-Farm Employment Change and Initial Jobless Claims numbers. The rate then made its weekly low of 1.2866 on Friday after UK Manufacturing Production declined by -0.2% m/m, significantly lower than the +0.5% that was expected. Also, the UK Goods Trade Balance showed a deficit of -11.9B versus -10.8B anticipated. GBP/USD closed at 1.2888, with a loss of -1.0% for the week. 

Lost a fraction last week as both economies reported mixed economic numbers, including a better than expected U.S. Non-Farm Payrolls number. The rate began the week declining on Monday after U.S. ISM Manufacturing PMI printed at 57.8 compared to an expected 55.0, while Spanish Manufacturing PMI showed a reading of 54.7 versus a consensus of 55.6. The pair declined another fraction on Tuesday after the Spanish Unemployment Change failed to meet expectations at -98.3K versus the anticipated -120.3K. On Wednesday, the rate also declined modestly, making its weekly low of 1.1311 after the FOMC Meeting Minutes indicated policymakers had agreed on reducing policy accommodation, but had not agreed on the timing. The Minutes noted, “The Committee currently anticipates reducing the quantity of reserve balances, over time, to a level appreciably below that seen in recent years but larger than before the financial crisis; the level will reflect the banking system's demand for reserve balances and the Committee's decisions about how to implement monetary policy most efficiently and effectively in the future.” Thursday saw the pair reverse direction, trading higher after the ECB Monetary Policy Meeting Accounts inferred it might drop the language to expand the quantitative easing program if necessary, the Accounts noted that, “While there were valid reasons at this juncture to retain the APP (Asset Purchase Program) easing bias, it was noted that, as the economic expansion proceeded and if confidence in the inflation outlook improved further, the case for retaining this bias could be reviewed.” Thursday’s numbers had U.S. ADP Non-Farm Employment Change show 158K new jobs in June compared to 184K expected. Also, U.S. ISM Non-Manufacturing PMI printed at 57.4 compared to a consensus of 56.5 and Initial Jobless Claims, which rose to 248K versus 243K expected. The rate then sold off after making its weekly high of 1.1439 on Friday after U.S. Non-Farm Payrolls increased by +222K in June compared to an expectation of +175K, with the previous number upwardly revised from +138K to +152K. Nevertheless, U.S. Average Hourly Earnings increased by only +0.2% m/m versus an expected +0.3% and the U.S. Unemployment Rate, which increased to 4.4% from 4.3%. EUR/USD closed at 1.1397, with a loss of -0.3% from its previous weekly close. 

Extended its previous week’s gains last week as the BOJ announced it would begin an emergency bond buying operation to stem the rise of long term yields. The week began with the pair rallying off of its weekly low of 112.19 on Monday after the Japanese Tankan Manufacturing Index printed at 17 versus an expectation of 15, while the Tankan Non-Manufacturing Index showed a reading of 23 compared to an expected print of 24. The rate then declined a fraction on Tuesday as Japan observed a bank holiday. The rate resumed its rally on Wednesday after a somewhat hawkish FOMC Meeting Minutes. On Thursday, the pair consolidated at a slightly lower level after mixed U.S. employment and PMI data. Friday saw the rate make its weekly high of 114.17 as the BOJ announced an emergency operation in which the central bank would purchase an unlimited amount of 10-year JGBs at a yield of 0.110%. In addition, the BOJ increased the size of its regular auction based purchases of 5 to 10-year maturities from ¥450 billion to ¥500 billion. USD/JPY closed at 113.87, with an overall weekly gain of +1.4%. 

Reversed direction, trading lower last week as asset flows favoured the Greenback over the Kiwi with very little economic data out of New Zealand. The week began with the rate selling off sharply after making its weekly high of 0.7337 on Monday after the New Zealand NZIER Business Confidence index printed at 18 versus a previous reading of 17. The pair then gained a fraction on Tuesday after the New Zealand GDT Price Index declined -0.4% compared to a previous -0.8%. The pair then declined on Wednesday after a somewhat hawkish FOMC Meeting Minutes. The rate gained a fraction on Thursday after making its weekly low of 0.7243 as the United States reported mixed economic data. On Friday, the pair lost a fraction after a lower than expected U.S. Non-Farm Payrolls number. NZD/USD closed at 0.7275, with an overall loss of -0.7% for the week. 

Extended its previous week’s losses last week as expectations for a 25 bp BOC interest rate hike later this week increased and Canada reported better than expected economic numbers. The week began with the rate making its weekly high of 1.3013 on Monday after a better than expected U.S. ISM Manufacturing PMI number. The pair then declined on Tuesday as the United States observed a bank holiday. On Wednesday, the rate gained ground after a hawkish FOMC Meeting Minutes. Thursday saw the rate gain another fraction after the Canadian Trade Balance showed a deficit of -1.1B compared to an expected -0.5B; however, Canadian Building Permits increased by +8.9% m/m versus an expectation of +2.5%. The pair then declined sharply on Friday, making its weekly low of 1.2859 after Canadian Employment Change increased to 45.3K, significantly higher than the +11.4K that was expected, and the Canadian Unemployment Rate, which fell to 6.5% from 6.6%. Also, Ivey PMI printed at 61.6 compared to an expected reading of 57.7. USD/CAD closed at 1.2872, with an overall loss of -0.7% from its previous weekly close.