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Last week recap

BY VANI KOLLURI

Extended its previous week’s losses last week as risk appetite favoured the Greenback over the Aussie, with very little significant economic data from Australia. The rate began the week selling off after making its weekly high of 0.7972 on Monday after hawkish comments from FOMC member Dudley. The pair continued its slide on Tuesday after comments from Fed Chair Yellen. On Wednesday, the rate lost another fraction after better than expected U.S. Durable Goods Orders data. Thursday saw the pair gain a fraction after making its weekly low of 0.7798 despite a better than expected U.S. Final GDP number. The rate resumed its selloff on Friday, declining by a fraction after mixed U.S. economic numbers. AUD/USD closed at 0.7829, with an overall loss of -1.6% from its previous weekly close. 

Extended its previous week’s losses last week after yielding no progress on Brexit negotiations with the EU and despite increased expectations of a November rate hike by the BOE. The week began with Cable making its weekly high of 1.3492 on Monday after the BOE issued a statement saying that an agreement was needed as part of the Brexit process to “protect the long-term validity” of 20 trillion GBP in existing derivative contracts. The statement noted that, “Impairment to the servicing of these contracts could disrupt market functioning and make it more expensive for firms and households to insure against risks”. The rate continued selling off on Tuesday after comments from Fed Chair Yellen. Wednesday saw Cable extend its losses after better than expected U.S. Durable Goods Orders data. On Thursday, the rate gained a fraction after making its weekly low of 1.3342 after comments from BOE Governor Mark Carney, who told BBC radio that, “What we have said, that if the economy continues on the track that it’s been on, and all indications are that it is, in the relatively near term we can expect that interest rates would increase somewhat”. The pair resumed its selloff, declining a fraction on Friday after the UK Current Account showed an expanding deficit of -23.2B compared to an expected -15.8B. Also, UK Final GDP increased by +0.3% q/q as widely anticipated, and UK Net Lending to Individuals, which increased by +5.6B m/m compared to an expectation of +5.0B. GBP/USD closed at 1.3392, with an overall weekly decline of -0.7%.

Lost ground last week as Angela Merkel’s party won a majority in German elections last weekend, ensuring her fourth term as Chancellor, while the Greenback was supported by increased confidence in a December interest rate hike by the Fed. The week began with the rate declining after making its weekly high of 1.1836 on Monday after comments from ECB President Draghi, who addressed the European Parliament’s committee on economic affairs in Brussels that, “"We still see some uncertainties with respect to the medium-term inflation outlook, most notably, the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring. We therefore need to be patient and persistent.” Also, comments from NY Fed President William Dudley supported the Greenback, after he said that, “I expect inflation will rise and stabilize around the (Fed‘s) 2 percent objective over the medium term, in response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually”. Monday’s economic data had German Ifo Business Climate print at 115.2 compared to an expectation of 116.0. The pair continued its selloff on Tuesday after Fed Chair Janet Yellen told the National Association for Business Economics that, “Without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession”. Tuesday’s economic numbers had U.S. CB Consumer Confidence print at 119.8, which was in line with expectations. On Wednesday, the rate made its weekly low of 1.1716 after news that German Chancellor Merkel was having difficulty forming a coalition government. Economic numbers on Wednesday had U.S. Durable Goods Orders, which increased by +1.7% m/m versus an expectation of +1.0%, while Durable Goods Orders increased by +0.2% as widely anticipated. The pair then gained ground on Thursday despite news that U.S. President Trump’s tax reform planned to cut the corporate tax rate from 35% to 20% and the highest bracket tax rate from 39.5% to 35%. Thursday’s eco-data included U.S. Final GDP, which increased by +3.1% q/q versus an expectation of +3.0%, and Initial Jobless Claims, which increased to 272K claims versus 269K expected. The rate continued higher on Friday despite German Retail Sales, which declined by -0.4% m/m versus an expected increase of +0.5%. Also, EZ CPI Flash Estimate increased by +1.5% y/y versus +1.6% anticipated, and Core CPI Flash Estimate, which also disappointed at +1.1% y/y versus +1.2% expected. EUR/USD closed at 1.1811, with an overall decline of -1.1% from its previous weekly close. As of this writing, Catalonia declared their independence from Spain after a referendum that was deemed illegal by Spanish authorities. Nevertheless, Catalonian President Carles Puigdemont said in a televised address that, “With this day of hope and suffering, the citizens of Catalonia have won the right to an independent state in the form a republic.”

Continued its rally last week as PM Abe called for a snap election, while the Greenback was supported by expectations of a Fed rate hike in December. The week began with the pair making its weekly low of 111.46 on Monday after news that PM Abe had called for a snap election to consolidate his power and to promote a revision of Japan’s pacifist constitution. Abe noted that he was calling the election, “To respond to the problems as leader of the nation, that’s my mission as prime minister,” Abe continued saying that, “Although it will be a difficult election, in order to overcome these national problems, I have to listen to the people’s voice.” The pair gained on Tuesday after comments from Fed Chair Janet Yellen. On Wednesday, the rate made its weekly high of 113.25 after better than expected U.S. Durable Goods Orders data and positive news on U.S. President Trump’s tax reform. The pair then lost ground on Thursday after BOJ Governor Kuroda reiterated his support for the BOJ’s massive stimulus programme, stating that, “Despite an expanding economy, prices continue to hover on a weak note”. The pair consolidated on Friday after mixed U.S. economic data. USD/JPY closed at 112.47, with a gain of +0.4% for the week. 

Reversed direction, selling off last week as the RBNZ left interest rates unchanged, while the Greenback was supported by expectations of a December rate hike and mixed economic numbers. The week began with the pair declining after making its weekly high of 0.7294 on Monday after hawkish comments from FOMC member Dudley. The rate fell sharply on Tuesday after the New Zealand ANZ Business Confidence index printed at 0.0, significantly lower than the previous reading of 18.3. The pair then gained a fraction on Wednesday after the RBNZ left its benchmark Official Cash Rate unchanged at 1.75% as was widely anticipated. In the Statement by Reserve Bank Acting Governor Grant Spencer, the RBNZ noted that “Monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward. The trade-weighted exchange rate has eased slightly since the August Statement. A lower New Zealand dollar would help to increase tradables inflation and deliver more balanced growth. GDP in the June quarter grew in line with expectations, following relative weakness in the previous two quarters.” The pair then consolidated on Thursday after making its weekly low of 0.7165 after a better than expected U.S. Final GDP number. The rate resumed its selloff on Friday after mixed U.S. economic data. NZD/USD closed the week at 0.7200, with an overall decline of 1.8% from its previous weekly close. Results for the NZ general election have the National Party retaining 46% of the vote after winning 58 seats, which is three seats short of a majority. Final results for the election are due to be announce on October 7th. 

Rallied for its fourth consecutive week last week as risk assets favoured the Greenback over the Loonie with mixed economic data from both countries. The week began with the pair gaining a fraction after making its weekly low of 1.2312 on Monday after hawkish comments from FOMC member Dudley. The pair consolidated on Tuesday after comments from Fed Chair Janet Yellen. On Wednesday, the pair gained after better than expected U.S. Durable Goods Orders data. The rate then sold off on Thursday despite a better than expected U.S. Final GDP number. Friday saw the pair resume its rally, making its weekly high of 1.2531 after Canadian GDP printed at 0.0% m/m versus an expectation of an increase of +0.1%, nevertheless, Canadian RMPI increased by +1.0% versus +0.4% anticipated. USD/CAD went on to close at 1.2466, with an overall weekly gain of +1.1%.