Tsunami warnings issued for British Columbia coast. USD/CAD edges higher.

Key Movers

The USD didn’t actually make a fresh low on Monday. Its index against a basket of major currencies held on to a 90 ‘big figure’ across all three time-zones even before news came of an end to the government shutdown after just 3 days. Overnight in Asia it dipped to 89.98 and after opening in London at exactly 90.00, the index added a couple of tenths to a best level of 90.20 during the European morning.
Whilst Senate Democratic leader Chuck Schumer announced that his party would support a short-term spending measure – which funds the government through 8 February - this only kicks the can another 2 ½ weeks down the road and if no agreement can be made on the so-called ‘Dreamers’ immigration programme, then the government will shut down again on February 9th. In the meantime, stocks have surged to yet another record high, whilst 10-year Treasury bond yields made a fresh cycle high of 2.66%. How long stocks and bond yields can continue to rise simultaneously is now the big question gripping asset managers and private investors around the world.

There is no official economic data scheduled for release in the US today though after the House passed the three-week continuing resolution that was passed by the Senate yesterday evening, it has cleared the way for President Donald Trump to head off to Switzerland for the WEF.

The US Dollar index opens in North America this morning at 90.10 with US 10-year bond yields 1bp lower at 2.64%.


After some tough talking from ECB Council members which held the euro down last week, the Single European Currency bounced back a little on Monday. EUR/USD rose from 1.2220 to a best level during the day of 1.2265 but this morning in Europe has given back around 20 pips of its gains.
The modest pullback in the EUR comes despite a very upbeat German ZEW Survey released today. According to their Press release, “The latest survey results reveal an optimistic outlook for the German economy in the first six months of 2018. With 95.2 out of 100 points, this is the most positive assessment of the current economic situation since the introduction of the survey in December 1991. Private consumption, which was the most important driver of economic growth in 2017, is likely to continue to stimulate growth in the coming six months according to the survey participants. The assessment of the global economic environment in Europe and the USA is also much more favourable than it was at the end of 2017.”
Still to come before the ECB meeting on Thursday, we have the preliminary Eurozone ‘flash’ PMI surveys on Wednesday and the ifo survey on Thursday morning.
The EUR opens in North America this morning at USD1.2245 and EUR/CAD1.5270.


The Pound was by some distance on Monday the best performer of all the major currencies we follow here. It moved back up on to a 1.38 big figure during the European morning and on to a best level in the New York afternoon of 1.3988; a fresh high for 2018 and the highest since the day after the referendum in June 2016. Overnight, it briefly broke the USD1.40 level but couldn’t hold on to all of yesterday’s gains, and has slipped back to 1.3940.

Although the IMF has raised its forecast for global growth ahead of the World Economic Forum in Davos, Switzerland, the Fund has cut its forecast for UK growth in 2019 to 1.5%, down from 1.6% previously. In response, the UK Treasury issued a short statement that, “We are building a Britain that is fit for the future by improving skills, backing innovation and investing in infrastructure to deliver a stronger economy and guarantee a better future for the next generation.”

The latest monthly CBI survey of 369 manufacturers published this morning revealed that optimism about both business conditions and export prospects improved at an above-average pace. Growth in manufacturing output and domestic and export orders all picked up, compared with the previous three-month period. Stocks also continued to grow robustly: for example, inventories of finished goods stocks rose at the fastest pace since October 2013. Employment grew at the fastest pace since July 2014 over the last three months, with further growth expected next quarter. However, skill shortages are high on firms’ agendas, with the number of firms citing skilled labour as a factor likely to limit output over the next three months the highest for more than four decades. And overall capacity pressures are biting hard: the proportion of firms with spare operating capacity was the lowest in 29 years.
On Wednesday we get the latest month unemployment and average earnings numbers and on Friday it’s the Q4 GDP numbers where consensus looks for a +0.4% q/q increase compared to the +0.5% rise which the Bank of England appears to have penciled in.

The British Pound opens in North America this morning at USD1.3940, CAD1.7380 and AUD1.7500.


Monday was very much an up and down day in the Northern Hemisphere for the Australian Dollar. Having printed a low locally in Sydney just above USD0.7980, it was then bid up all the way to 0.8021 before stories began to circulate of a Democratic agreement to end the US government debacle and the pair slipped back to 0.8005. Overnight it has slipped further and in Europe the AUD traded down to 0.7965.

In the Australian housing market, figures showed auction clearance rates over the weekend in Melbourne and Sydney fell to 54% and 50%, from 67% and 61% respectively this time last year. A story in today’s AFR shows that Sydney residential vacancy rates picked up to 2.2% in December, their highest level since July 2013. Rising vacancy rates are expected to put downward pressures on rent, and the latest data shows Sydney rents fell 0.3% in December, to a median weekly rent of $599 for houses and $561 for apartments.

As for consumers, the latest ANZ-Roy Morgan Australian Consumer Confidence index released today fell 3.3% to 119.4 this week following three consecutive strong reports. The fall was broad based, with views towards current finances leading the pullback. The current finances sub-index fell a sharp 9.1% to 104.7, partially unwinding gains over the previous three weeks. In comparison, views towards future finances fell a more modest 2.2%, following a 0.2% decline in the week prior. Despite the weekly falls, both sub-indices sit above their long-term averages.

Next up on the economic calendar are the Westpac leading index and skilled vacancies numbers on Wednesday. The first RBA meeting of the new year is still more than a fortnight away and the currency seems likely to be moved as much by news from the US and Davos, Switzerland than by anything at home.

The AUD opens in North America this morning at USD0.7965 with AUD/CAD at 0.9935 and AUD/NZD1.0880.


Monday was one of the quietest days for a while for the New Zealand Dollar and, unusually, it finished neither top nor bottom of the one-day performance table! From its low point in Asia of USD0.7271 it managed to add just over half a cent to 0.7326 though overnight, it has extended these gains and been up to 0.7344; its best level at any point since the September 23rd election.

After last Friday’s disappointment of the manufacturing PMI survey, today we saw the performance of services index. The previous monthly numbers out exactly a week before Christmas showed a slight lift in November from 55.7 to 56.4 and brought to an end a 2-month spell of weaker rates of expansion around and immediately after the September election. December’s index fell back to 56.0 though the Press release from BusinessNZ was pretty upbeat saying the services sector ended the year in solid expansion territory and noting the monthly average for 2017 of 56.9 was up on the 2016 average of 56.6. They drew attention, also, to the sub-index of new orders which showed strong expansion with an average over 60 points for 2017.

The main focus for the rest of the week will be Thursday’s quarterly CPI numbers which consensus estimates will be around +0.4% q/q and 1.9% y/y. The RBNZ’s published forecast is one-tenth lower on both measures.

The New Zealand Dollar opens in North America at USD0.7315 with NZD/CAD at 0.9130.