It’s a busy week of Central Bank meetings in the US, UK and Eurozone. Thursday’s labour market report will be key for AUD.
Monday 11 December, 2017
Daily Currency UpdateThe Australian Dollar begins this morning after a week which wasn’t dramatically bad but nonetheless saw the currency slide to 6-month lows against the US Dollar and its worst level in almost 18 months against the British Pound. It began last Monday clinging on to a US 76 cents big figure as it awaited the final RBA Board meeting of the year and the high of the week at USD0.7650 came as investors scoured the Statement for clues about monetary policy. In truth, there were only some very minor tweaks to the Central Bank’s language. Wednesday’s GDP figures pushed the AUD down to 0.7560. Most analysts’ forecasts had pinned Q3 GDP growth around 0.7-0.8% q/q so the headline gain of just 0.6% was a clear miss, whilst the annual rate of printed only at 2.8%. Thursday’s trade numbers were yet another disappointment, falling to a surplus of just $105 million in October from $1.6 billion the previous month. AUD/USD broke through technical support at 0.7540 and with pressure continuing on Friday, it reached a low of 0.7503; the weakest since early June. For the busy week of international events ahead which includes Central Bank meetings in the US, UK and Eurozone, the main focus locally will be Thursday’s Australian employment report and before then the NAB business survey on Tuesday.
Key MoversThe New Zealand Dollar ended the week lower on net, but with some pretty large intra-day volatility which was never fully explained by the incoming economic data. NZD/USD began at 0.6880 and ended at 0.6837 but it jumped around from top to bottom of each day’s performance tables in what at times looked quite a random fashion. After Monday’s tumble to USD0.6840, the NZD then jumped to 0.6902 on Tuesday and on to a high for the week on Wednesday of 0.6907. Economic data on job vacancies, construction work done, and wholesale trade were all pretty good but Thursday saw the NZD down to USD0.6824 and it recovered only marginally into the close on Friday evening after the performance of manufacturing survey was published. According to the Financial Times, the NZ government will this week publish legislation to ban foreigners from buying existing homes; what the newspaper describes as, “the first plank in a suite of policies designed to tackle a chronic shortage of affordable homes that has sparked a homeless crisis”. Quoting Grant Robertson, New Zealand’s minister for finance, as saying, “The market for housing in New Zealand is completely broken,” it cites a recent report by Yale University which concluded the country is suffering the highest rate of homelessness in the developed world with 40,000 people, nearly 1 per cent of the population, living on the streets or in emergency housing or substandard shelters. If the very real concerns about housing availability and unaffordability are spun into an anti-foreign capital message, then it would be reasonable to expect the NZD to remain somewhat pressured this coming week also.
For the British Pound, the last week was once again dominated by Brexit and the three-way discussions between Dublin, London and Ulster’s Democratic Unionist Party. Having opened at USD1.3450, the pound jumped to 1.3512 then fell half a cent on Monday on news that UK Prime Minister Theresa May was unable to offer an agreement on the Irish border issue to European Commission President Jean-Claude Juncker. On Tuesday it fell further than rallied in the belief that a form of words would somehow be found to bring the Government’s DUP coalition partners back with their support. By Thursday morning it was down at the week’s low of 1.3333 before then rallying sharply on rumours of a deal. Friday was the day of highest drama. The Prime Minister flew to Brussels at 4.30am and at 6am it was announced that enough progress had been made on the Irish border, the divorce bill and the rights of EU citizens to move on to the second phase of Brexit talks and a 2-year transitional trade deal. The pound moved exactly back to Tuesday’s 1.3512 high and then fell almost 1 ½ cents into the New York close. This classic “buy the mystery, sell the history” price action came as investors reflected on what seemed a poor and expensive deal for the UK and whether indeed all the Government’s own MP’s would agree upon its terms. For the week ahead, the focus for currency markets may switch batch to incoming economic data with CPI, average earnings and retail sales all due before Thursday’s BoE MPC meeting.
The US Dollar last week rose for five consecutive days. Friday’s gain might need the aid of a magnifying glass to be accurately observed, but the USD index ended the week at 93.50 having begun around 92.80. The stock-market sell off 10 days ago proved to be very brief and by last Monday’s close of business, the S+P 500 index was at a fresh all-time high, talk of a Presidential impeachment had disappeared and the dollar’s troubles were behind it. A decent US service sector PMI report on Tuesday was followed on Thursday by the third straight decline in weekly jobless claims and was the 144th consecutive week that claims remained below the 300,000 threshold. Friday’s employment report showed non-farm payrolls rose 228k versus expectations of a more modest 195k increase whilst the unemployment rate remained at a post-GFC low of 4.1%. This seems only a pause in a downward trend; if payrolls continue to rise at the average pace of the last 3-6 months, then the unemployment rate will fall around one-tenth each quarter. It is against this backdrop that the Fed begins its two-day FOMC meeting on Tuesday. It is a near-certainty that rates will be raised 25bp and, if the equity market holds up, then so too could the US Dollar. On this week’s US economic data calendar, CPI is released Wednesday, Thursday brings retail sales and Friday is industrial production.
The Euro opens in Sydney this Monday morning after a bad week which - even with the benefit of 20:20 hindsight – is not easy to explain. There were no ECB speakers resetting or finessing investors’ monetary policy expectations and the incoming economic data were almost without exception positive. EUR/USD began at 1.1875 but this proved to be its best level of the whole week even though surveys of confidence and activity showed the economic recovery in the Eurozone to be broadening and deepening. None of this helped the EUR at all. It traded sideways on Monday, lower on Tuesday with accelerating downside momentum dragging it to a low of 1.1737 on Friday morning before closing in New York at USD1.1775. For the week ahead, there’s an ECB Council Meeting at lunchtime on Thursday at which new staff economic projections will be unveiled. Before that, on Tuesday its Germany’s ZEW survey of professional investors and we’ll get the ‘flash’ December PMI’s on Thursday morning. On Wednesday, European Commission President Juncker and European Council President Tusk are scheduled to brief members of the European Parliament about Brexit negotiations ahead of the EU Economic Summit in Brussels on Friday. It will be interesting to see if the incoming data can be more help to the EUR than they were over last week.
The Canadian Dollar had a much calmer week, even if calm doesn’t necessarily mean good. It opened at USD1.2704 and by Tuesday morning reached a best level of USD1.2644 as investors anticipated the possibility of a hawkish surprise from Wednesday’s Bank of Canada policy meeting. There was nothing too troubling in its review of the domestic economy though the CAD was hit by the line that, “While higher interest rates will likely be required over time, the Governing Council will continue to be cautious, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation”. USD/CAD jumped up to 1.2800 almost immediately and by the New York close on Friday it was up at 1.2850; almost exactly where it was just before the stunning Canadian employment report 10 days ago. The week ahead is pretty light in terms of economic data with just new house prices on Thursday and the monthly survey of manufacturing on Friday.
- AUD/NZD: 1.0960 - 1.1095 ▼
- GBP/AUD: 1.7800 - 1.8000 ▲
- AUD/USD: 0.7430 - 0.7540 ▼
- AUD/EUR: 0.6360 - 0.6400 ▼
- AUD/CAD: 0.9620 - 0.9690 ▼