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AUD and NZD both higher against USD whilst CAD surges after very strong CPI and retail sales data

By Nick Parsons

On nearly any other day, the Aussie Dollar’s performance would have put it top of the pile in the FX universe, but the very sharp rally in the Canadian Dollar pushed the AUD into second place on Thursday. The AUD was bid right from the start of the European session and as dealing books were handed over to New York, AUD/USD reached 77 US cents for the first time since way back on November 2nd.

The chief feature of this move is that it didn’t come on a day when the US Dollar was particularly weak. In fact, the USD index ended the day pretty much where it began at 92.90. Nor was it driven by any specific piece of Australian news or macroeconomic data. We have been warning here all week that as markets become increasingly less liquid as the Christmas holiday approaches that foreign exchange markets could be prone to sudden and seemingly random shifts and Thursday’s move amply illustrates the point we made.

The number crunchers at the Australian Bureau of Statistics sensibly closed for the holiday season at midday yesterday and there will be no data releases at least until it re-opens on January 2nd. In this final morning update, we’ll leave the final words to the ABS who noted earlier this week that, “Santa will be busy this Christmas visiting the 2 million Australian families with children under the age of 12. The 2016 Census shows that most children live in New South Wales (1.2 million), Victoria (947,408) and Queensland (795,908). While the ABS doesn't record official reindeer numbers, the Census recorded 35 deer farmers in Australia who we’re sure could help Santa should any of his deer get tired.”

The AUD opens in Asia this morning at USD0.7705 with AUD/NZD at 1.0990 and GBP/AUD1.7355. We wish all our Australian readers a very Happy Christmas, whatever your holiday plans.

Just as the Aussie Dollar got back on to a new big figure against the US Dollar, so too the Kiwi Dollar spent nearly the entire day back on 70 cents with only a very brief dip down to 0.6990 around 11am London time which was quickly reversed.

The move higher in NZD/USD can be pinned almost entirely on the New Zealand GDP figures. Ahead of their release, growth forecasts at the major banks locally ranged from +0.4% at Westpac to +0.7% at BNZ with the consensus at +0.6% q/q for an annual 2.4%. The official figures out yesterday morning showed a rebound in the construction sector drove gross domestic product up 0.6% in the three months ending September with an upwardly-revised +1.0% in Q2 helping lift the annual rate of growth to 2.7%. Statistics New Zealand also revised its GDP figures for previous years, raising 2015 growth to 3.6 percent from 2.4 percent and 2016 to 4 percent from 3 percent.

The main bright spot in the latest figures was the construction sector, which grew 3.6 percent, unwinding two quarters of falls as investment went into rail, road and other infrastructure. But growth was dented by dairy production, which has been hampered by wet weather and lower global prices. As we suggested in our preview of the data, the RBNZ’s last Monetary Policy Statement assumed a +0.7% quarterly increase so anything less than this will reinforce expectations that interest rates will be on hold until at least 2019. Notwithstanding the upward revisions to prior periods, this has been very much the reaction from analysts locally and helps explain why NZD/USD still hasn’t broken Monday’s high around 0.9027.

The British Pound had another up and down session on Thursday. Though it was quite resilient in the face of disappointing numbers on consumer confidence and car manufacturing, it finished pretty much unchanged against the EUR and USD, though well down against the Aussie, Kiwi and Australian Dollars.

Latest industry figures from the Society of Motor Manufacturers and Traders (SMMT), show a 4.6 decline in the number of cars rolling off assembly lines in November to 161,479, taking annualised output to 1.69 million. This is an 18-month low after deliveries to the domestic market collapsed by more than 28 per cent; Only 15 per cent of UK cars built in November — 24,276, down from 33,745 in the same month last year — stayed in the home market, indicating rising nervousness among buyers. If the weak trend persists in December, UK car production will have suffered its first annual fall since 2009, when Britain was in the depths of the financial crisis. In that year, production plunged 31% to 999,460 cars.

Separate figures earlier today by GfK showed UK consumer confidence fell again in December. The index fell by one point to -13, marking almost two years of declining consumer confidence. As their Press Release noted, “We need to see several issues move on before the downward trend of the consumer mood changes. We need to have a better sense of how Brexit will pan out, and also of how quickly and how far interest rates will rise. But none of this will be resolved quickly so there’s every likelihood that 2018 will take us lower.”

The Pound opens in Asia this morning at USD1.3370 and GBP/AUD1.7355 with GBP/NZD at 1.9075.

Given the one story which has dominated financial markets for the last few months, we can’t resist reporting that the US Dollar yesterday rose against Bitcoin to end the day at USD/XBT0.0000649. Against the currencies which can actually be used for the payment of goods and services, the USD was either unchanged (EUR and GBP) or lower (NZD, AUD and CAD). It’s index against a basket of major traded currencies slipped very slightly to end at 92.83; the lowest since December 5th.

The bumper crop of economic data in the US on Thursday was somewhat mixed. The second revision to Q3 GDP showed the annualised pace of growth slipped from a previously reported 3.3% to 3.2%, whilst weekly jobless claims rose much higher than expected from 231k the prior week to 241k. Against this very marginal softness, however, the Philly Fed survey jumped from 21.5 in November to 26.2 whilst the November index of leading economic indicators rose 0.4%, in line with consensus forecasts and the 15th consecutive monthly increase. The index was boosted by strong ISM new orders, higher stock prices, the positively-sloped yield curve, elevated consumer confidence and somewhat easier credit conditions.

Whilst their counterparts in the Southern hemisphere have sensibly headed off on vacation, there’s plenty still for the US statisticians to report on before their Christmas break begins. Friday brings not only durable goods orders, new home sales and the Michigan survey of consumer sentiment, but also the monthly personal income and expenditure numbers as well as the much-watched (and Fed targeted) PCE deflators. The US Dollar index opens in Asia this Friday morning at 92.86 but where it finishes in extremely illiquid market conditions in New York this afternoon is anyone’s guess…

The euro was pretty much side-lined on Thursday with no economic data in the Eurozone, and politicians keenly watching elections as the Spanish region of Catalonia went to the polls. The election was called by the Spanish prime minister, Mariano Rajoy, at the end of October when the central government took control of Catalonia and sacked the regional government after it staged an illegal independence referendum and made a unilateral declaration of independence. The latest opinion polls suggest Catalonia is set for a hung parliament, with the pro-independence Catalan Republican Left party (ERC) vying for first place with the unionist, centre-right Citizens party.

Article 155 of the Spanish constitution – which allowed Prime Minister Rajoy to sack the Catalan government and call elections – will remain in force until a new government has been agreed and a new regional president elected by the Catalan parliament. For the moment, and indeed for the forseeable future, no government in Europe is willing to support a Catalonian push for independence and the exiled leader of the secessionists, Carles Puigdemont, could well face arrest should he return from Belgium.

The EUR opens in Asia this morning at USD1.1865, AUD/EUR0.6490 and NZD/EUR0.5910.

The Canadian Dollar exploded higher on Thursday after an extremely strong set of economic data on CPI and retail sales. By the end of the day, it was way out at the top of the FX leader board, rising 0.5% against the AUD and more than 1% against all the other major currencies we track here.

The Bank of Canada has a 2% target for CPI and in October it predicted it would average 1.4% in the final three months of 2017. Policy makers didn’t expect a sustained return to 2% inflation until the end of next year. Instead, CPI inflation accelerated to 2.1% y/y in November from 1.4% in October. While the jump was due to a surge in gasoline prices (up 19.6% y/y), the increases went beyond energy. Prices were up in seven of the eight major CPI components in the 12 months to November, with the transportation and shelter indexes contributing the most to the increase.

We don’t yet know the impact of these higher prices on consumers expenditure but the October retail sales figures also released yesterday showed plenty of forward momentum. Statistics Canada reported retail sales rose 1.5% to $49.9 billion in October. Higher sales at new car dealers were the main contributor to the gain. Excluding sales at motor vehicle and parts dealers, retail sales increased 0.8%. Sales were up in 7 of 11 subsectors, representing 79% of retail trade. After removing the effects of price changes, retail sales in volume terms increased 1.4%.

The Canadian Dollar opens much higher in Asia this morning than it did 24 hours ago. It begins at USD1.2725 with AUD/CAD at 0.9800 and NZD/CAD at 0.8920 and we still have the monthly GDP for October to look forward to later in the day.