RBA meets on Tuesday, BoC on Thursday. Currencies had a wild day on Friday; will it be calmer this week?

Key Movers

The New Zealand Dollar had a pretty wild time last week. AUD/NZD broke down on Monday from the relatively tight 1.1060-1.1120 range which had contained it for 3 or4 days previously. The break triggered a series of NZD buy orders across a whole range of currencies and it finished the day by some distance the best performer of all the majors.

NZD/USD moved up from 0.6855 on Monday to a high of 0.6940 on Tuesday as the positive momentum continued. Wednesday’s Financial Stability Report and the comments by Acting RBNZ Governor Spencer came and went without drama but the big shock for the NZD came Thursday with a very weak ANZ business outlook report. This showed New Zealand business confidence has tumbled to its weakest since the global financial crisis amid uncertainty over the policies of a new center-left government. A net 39.3 percent of firms expected the economy to deteriorate in the next 12 months; down from 10.1 percent in October and the lowest reading since March 2009. NZD/USD tumbled half a cent to 0.6835 then on Friday it extended losses to 0.6828. When the Flynn/Trump/FBI story broke in New York, however, the pair jumped to 0.6890 and – as with the Aussie Dollar - it ended the week almost exactly unchanged.

Looking forward, its still a very long wait to the Q3 GDP figures on December 21st (more than 2 weeks after Australia) but in the meantime we’ll have some of the ‘partial’ data which then feed into the number. Tuesday is Building Work, Thursday is Wholesale Trade and Friday is the Manufacturing Survey. It will be tough to repeat last week’s dramas for the NZD but in Foreign Exchange, we learn never to say never!


The GBP had the wildest time of all last week, surging to multi-month highs against the ‘Commonwealth Currencies’ and from Tuesday’s low point against the US Dollar, it then advanced more than three cents. The political focus was initially on the possibility that the Brexit Secretary could be held in contempt of Parliament. GBP/USD held steady around 1.3330 but moved sharply lower Tuesday when the Bank of England’s Financial Stability Report highlighted many of the downside risks to the UK economy and its banking system.

GBP/USD hit a session low late in the afternoon of 1.3230 before the totally unexpected headlines that “Britain and EU agree Brexit Divorce Bill”. As these allayed fears of a collapse of the negotiations, the British Pound surged. GBP/USD rose to 1.3375 in a matter of minutes whilst GBP/AUD jumped from 1.7370 to just over 1.76. The move extended into Thursday and by Friday morning Sydney time, the GBP hit USD1.3540 and AUD1.7900. We began to sound a note of caution after this move, largely because of talk of some unrest from Conservative MP’s about the size of the Brexit bill, but also because of talk about an Irish border agreement which looked to be unacceptable to the Government’s DUP Coalition partners.

Over this last weekend, Theresa May’s Social Mobility heads resigned en masse whilst a group of Conservative MP’s and ex-Ministers calling themselves ‘Leave Means Leave’ have set out a list of conditions upon which they threaten to base their support. The huge optimism of last Thursday already seems a fading memory. We’ll have to see now whether Friday’s late sell-off in GBP (which took it down to USD1.3475 and AUD1.7700 is extended further).


After a poor Thanksgiving holiday on FOMC concerns about an upturn in inflation, the USD did a bit better last week. The earlier negative momentum dragged its index down to a low of 92.20 on Monday morning but this proved to be the low of the week. Stronger economic reports (house prices and consumer confidence) and fresh all-time highs for the US stock market helped lift the Dollar index to a high of 93.1 on Friday morning.

Fed Governor Jerome Powell’s Senate Confirmation hearing proceeded smoothly on Tuesday whilst outgoing Chair Janet Yellen then sounded a bit more certain about the economy and inflation. The closely watched PCE numbers were exactly in line with consensus expectations at 1.4% y/y and the S+P 500 index hit a high of 2653 on Thursday. If the week had finished on Friday morning, it would have been a success for both the USD and the equity market.

Instead, as the Trump/Flynn story broke, the USD index fell half a percent and at one point the S+P was 25 points lower. Every stock trader now knows that dips are for buying: the market regained all its losses in the last couple of hours and though some way off its best levels, the USD finished a net three-tenths of a point higher on the week at 92.57. The Fed is about to enter radio silence ahead of the Dec 12-13 FOMC meeting so the immediate focus for FX markets this Monday morning is Trump/Flynn and tax reform before attention shifts to the delayed payroll numbers at the end of the week.


The last week was a very frustrating time for those analysing or trading the Single European Currency. It had a whole series of reversals in both directions before ending the week very slightly lower against the USD at 1.1900. AUD/EUR traded an 80 pip range between 0.6380 and 0.6420 and a 60 pip rally off the low on Friday actually saw the Aussie finish higher on the week; something which had looked extremely unlikely when traders in Sydney pulled stumps.

The EUR had to contend with the labyrinthine uncertainties around a new German coalition along with conflicting inflation reports across the Eurozone; stronger CPI in Germany but weaker in Italy. Economic indicators were uniformly very positive but the bar of expectations is already set very high and the news wasn’t sufficiently greater than consensus expectations to give the EUR much of a lift. As we described it on Thursday, “Foreign exchange is supposed to be a ‘zero sum game’. Sometimes, though, it just feels there are more losers than winners. For EUR/USD, this is one of those weeks”.

Looking forward, Tuesday brings the various PMI service sector indices across the Eurozone whilst Wednesday it’s German factory orders and on Thursday we have German industrial production. Ahead of the Council Meeting on December 14th, we may get a few ECB speakers early in the week but otherwise it all seems pretty quiet. There is no need for the Central Bank to give any signals one way or another and they’ll be pretty happy if traders endure another frustrating week of little net change for the EUR.


The Canadian Dollar just had an incredible week. Ahead of the 173rd OPEC meeting in Vienna, it spent the first three days tracking an ever-lower oil price. There are usually some hints and rumours and leaks about production cutbacks but as none of these were forthcoming, NYMEX crude fell to $57.30, the CAD was sold heavily and USD/CAD reached 1.29 for the first time in 5 months.

From 1600GMT on Thursday afternoon, oil rallied 75 cents and by the New York open on Friday was back up at $58.75. This alone was offering some support the CAD, but then came a stunning Canadian labour market report. Consensus expectations were for an increase in November employment of around 10,000. Instead, a total of 79,500 jobs were added, pushing average earnings up from 2.4% y/y to 2.7%. By the end of the North American session, with the US Dollar in retreat on the Trump/Flynn story, USD/CAD had suffered its biggest daily drop in 21 months. The pair crashed from 1.2900 to close at 1.2684 with the CAD surging against every currency. AUD/CAD fell a full cent to 0.9650 whilst NZD/CAD fell 80 pips to 0.8745.

The Bank of Canada holds its 8th and final monetary policy meeting of the year on Thursday, though for the CAD it’s hard to imagine much more volatility than we saw at the very end of last week.