Home Daily Commentaries USD slips after Alabama Senate election, NZD holds on to gains, AUD boosted by M&A activity

USD slips after Alabama Senate election, NZD holds on to gains, AUD boosted by M&A activity

Daily Currency Update

The USD has been on a real hot streak, rising for a sixth day out of seven on Tuesday to take its index against a basket of major currencies up to a high of 93.81; its best level since November 14th. It closed in New York around 93.70 but overnight in Asia and Europe has eased back a little further to open in North America this morning at 93.60.

The big event politically is the highly controversial Senate election in Alabama; a deeply conservative southern State. The Republicans have not lost a seat there for 25 years and in the Presidential Election in 2016, Donald Trump won by 28 percentage points; 62.1% to 34.4%. President Trump had given support to the former judge, Roy Moore, who faced a series of misconduct allegations in the weeks leading up to the election. Moore was defeated by Democrat Doug Jones; a move which now reduces the Republican majority in the Senate to just one seat with a 51-49 split.

President Trump said on Twitter: “Congratulations to Doug Jones on a hard fought victory. The write-in votes played a very big factor, but a win is a win. The people of Alabama are great, and the Republicans will have another shot at this seat in a very short period of time. It never ends!”

Ahead of this evening’s FOMC Statement and the inevitable 25bp rate hike, US CPI at lunchtime is expected to rise from 2.0% to 2.2%, though the core ex-food & energy measure is seen unchanged at 1.8%. The stock market reaction to both events will be crucial to the near-term prospects for the US Dollar.

Key Movers

The Canadian Dollar had a day of two halves yesterday, tracking oil prices both up and down. The early news was that the North Sea Forties Pipeline System – which carries 400,000 barrels per day of oil to Scotland – is being closed for repairs after the discovery of a serious crack whose repair will likely take weeks rather than days. NYMEX crude (not a perfect substitute for Brent but still highly correlated to it) jumped 50 cents to a high of $58.55 but then plunged a dollar-fifty in the North American session to $57.10. Overnight it has rallied almost 50 cents to $57.60.

USD/CAD had a pretty volatile session Tuesday, moving from 1.2821 to 1.2885 before then settling back in the middle of this range through the overnight session in Asia. During the European morning it has moved up a quarter of a cent and opens in North America this morning at USD1.2860 with GBP/CAD at 1.7175.

The rest of the week is pretty light in terms of economic data with just new house prices tomorrow and the monthly survey of manufacturing on Friday. Bank of Governor Stephen Poloz is due to give his speech entitled “Issues keeping me awake at night” on Thursday lunchtime in Toronto. Presumably it won’t be about his list to Father Christmas…

Apart from a brief mid-morning rally it was downhill all the way for the EUR on Tuesday. Yet again, it fell against every major currency with its biggest losses against the AUD and NZD (-0.5%) but down -0.4% against the USD and 0.1% against the GBP. EUR/USD fell to a low of 1.1720; matching its lowest point in 3-weeks whilst EUR/CAD dropped to 1.5092.

This morning has brought another set of decent, albeit lower-tier, economic numbers in the Eurozone. Industrial production rose 0.2% m/m in October, slightly above the consensus, 0.0%. The annual rate was pushed up to +3.7%, from a revised +3.4% in September, also above the market consensus. The headline was boosted by a jump in Irish production as well as higher output in France, Spain and Italy. Small falls were seen in Germany and Portugal. Across sectors, the main boost came from stronger output in non-durable consumer goods and energy production, offsetting weakness elsewhere.

On the political agenda today, 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.

Tomorrow morning we’ll get the ‘flash’ December PMI’s and there’s an ECB Council Meeting at lunchtime at which new staff economic projections going out to 2020 will be unveiled. A Bloomberg survey of analysts conducted last week shows only two banks expect the ECB to raise rates before December 2018, so tomorrow’s meeting should be pretty uneventful.

The EUR opens in North America this morning at USD1.1745 and CAD1.5100.

Against a US Dollar which has been hit by the Senate election result in Alabama (see above), the pound has recovered a little overnight though it still remains pretty much where it was 24 hours ago at 1.3355. Against the Canadian Dollar it opens at 1.7175.

After the relief on Brexit talks last week, today looks a much tougher day politically for Prime Minister Theresa May. Faced with a proposal from the former Attorney General that would require the Prime Minister to write the terms of her Brexit deal into a law that would have to be passed by Parliament, she faces either defeat or retreat. There is enough cross-party support to defeat the Government in a House of Commons vote this evening which could dramatically shatter the veneer of unity after last week’s Irish border deal.

The latest UK economic data had something for everyone but on balance were a bit disappointing. The total jobless number fell by 26,000 in the last 3 months to 1.43m, taking the unemployment rate down to a 42-year low of just 4.2%. But, the total number of people in work fell by 56,000 in the last quarter; the biggest drop in more than 2 years. The simultaneous fall in employment and unemployment is possible because there has been a large increase (115,000 over the quarter) in the number of economically inactive. As for wages, the 3-month average measure of total pay rose to 2.5% but is still below the rate of inflation. Real wages in the UK have now fallen for 8 consecutive months and show few signs of picking up any time soon.

Although the Aussie couldn’t hold on to its best levels against a very strong US Dollar, Tuesday was actually a pretty good day. It held its ground against the buoyant NZD and finished up against every major currency we track here with its biggest percentage gains versus the EUR (+0.7%) CAD and GBP (both +0.5%). AUD/USD peaked at 0.7576 before slipping back to 0.7548 and though it tried again in London this morning, it once again couldn’t crack that technical resistance point.

One of the reasons for Aussie strength is the takeover of Sir Frank Lowy's Westfield Corporation in a deal said to be worth AUD$32.7 billion. Founded in Sydney in 1953, Westfield currently has interests in 35 shopping centers in the US and the UK and its chairman received a knighthood from the Queen at Windsor Castle just a few days ago for his contribution to the British economy. French company Unibail-Rodamco will acquire Westfield for a combination of shares and cash, and though the 35% cash element won’t be paid until next year, the announcement has helped lift the AUD.

Looking forward to tomorrow’s Australian economic data, consensus estimates are for a +15k increase in employment with the jobless rate steady at 5.4%. Unlike many countries elsewhere in the world, Australia doesn’t produce monthly earnings data alongside the labor report; instead the wage price indices are available only quarterly and we’ll have to wait until February for the latest updates.

For today, AUD/USD opens in North America at 0.7560 with AUD/CAD little changed at 0.9730.

The Kiwi Dollar couldn’t keep the pace of Monday’s gains but it has still done pretty well to consolidate at higher levels. The NZD has held on to a US 69 cents big figure ever since 01.00am New York time on Monday morning and at today’s opening of 0.6940 is less than 20 pips off its very best level of the week. NZD/CAD, meantime, is up more than 1 ¼ cents since the beginning of the week and at 0.893 this morning is only 10 pips off its high.

Overnight in New Zealand, the latest data on food prices matched the consensus of analysts’ forecasts, falling -0.4% m/m in November. Lovers of economic data always have plenty to feast on from NZ’s official statisticians. Today they tell us that lower fruit and vegetable prices were driven by a 6.5% fall for vegetables. Tomatoes, broccoli, and lettuce led this fall. Fruit prices rose 3.7%, driven by higher prices for nectarines and apples, slightly offset by lower strawberry prices. Elsewhere, and as UK shoppers will be painfully aware, annual butter prices increased 48%to reach another record high. The average price of the cheapest available 500 gram block was $5.74 in November 2017, compared with $5.67 in October 2017 and $3.88 a year ago.

Let’s see if the official number-crunchers can make tomorrow’s data on agricultural production and Friday’s vehicle registrations just as interesting…

Expected Ranges

  • USD/CAD: 1.2810 - 1.2890 ▼
  • EUR/USD: 1.1710 - 1.1790 ▼
  • GBP/USD: 1.3310 - 1.3410 ▼
  • AUD/USD: 0.7520 - 0.7650 ▲
  • NZD/USD: 0.6910 - 0.6995 ▼