US Dollar index falls another half point to fresh 14-week low. AUD/USD and NZD/USD both extend recent gains though CAD is top of the pile.

Key Movers

As the Aussie Dollar has surged over the past few weeks, the New Zealand Dollar has done very well to generally keep up with the pace. For sure, the AUD/NZD cross has risen from 1.0870 back on December 13th to 1.1015 which signals some modest NZD underperformance but NZD/USD has spent most of the first 24 hours of 2018 on a US 71 cents big figure, reaching a high in the London morning of 0.7125.

There is a very wide spread of opinion amongst the local and international banks about the prospects for the Kiwi Dollar in 2018. At the bullish end of the spectrum, ING bank looks for a year-end rate of USD 76 cents. Local specialist BNZ forecasts 70 cents whilst JP Morgan picks 64 and Morgan Stanley goes for a very bearish 61 cents.

Just as with Australia, the NZD may need the support of improving macroeconomic data both at home, in China and the broader APEC region if its recent gains are to be sustained. For all the focus on domestic economic policy after the September elections, recall that the countries of Asia-Pacific Economic Cooperation (APEC) take more than 70 percent of New Zealand’s exports, provide 71 percent of tourism arrivals, and account for around 75% percent of New Zealand’s foreign direct investment.

Fortunately for the NZD, the first Global Dairy Trade auction of 2018 saw the overall index rise 2.2%, though this hides some big swings for individual markets. Butter milk powder (BMP) took a sharp decrease by 7.3%, having not been on offer at the previous event whilst whole milk powder (WMP) on the other hand rose by 4.2%.

The New Zealand Dollar opens in Asia this morning at USD0.7105 with AUD/NZD at 1.1015.


The pound got off to a very good start to the New Year 2018 yesterday, second only to the buoyant Canadian Dollar on the one-day performance table. Against a very weak US Dollar it reached an intra-day high of 1.3594 which matched its high for 2017 reached back in mid-September.

This impressive price action comes against a backdrop of a slightly softer than expected manufacturing PMI report which printed at 56.3 in December; well down from November’s 51-month high of 58.2. Although December saw rates of expansion in output, new orders and employment slow from November’s highs, growth in all three components remained solid and well above long-run trends. And, despite the uncertainties of Brexit, the headline PMI has now remained above the 50.0 no-change mark for 17 consecutive months.

On the inflation front – which will be crucial for the Bank of England’s Monetary Policy Committee in 2018 – Markit reported the rate of increase in input costs eased to a 4-month low in December, but remained marked overall. Companies linked higher costs to rising raw material prices, input shortages, suppliers raising their prices and the exchange rate. The cost of chemicals, electrical goods, electronics, metals, paper, plastics, timber and utilities were all reported as higher.
Part of the increase in purchase prices was passed on in the form of higher output charges in December. Selling prices rose for the twentieth successive month with companies linking the latest increase in charges to stronger demand.
Ahead of the construction PMI today and the service sector PMI index on Thursday, the pound opens in Asia this morning at USD1.3590 with GBP/AUD at 1.7360 and GBP/NZD1.9125.


The US Dollar remains friendless and after two weeks of near-relentless losses into year-end, it has kicked off 2018 with further losses. Its index against a basket of major currencies opened in Sydney yesterday around 91.90 and fell all the way to 91.44 by mid-morning in Europe before rallying very slightly to close in New York around 91.52. This is barely half a point above the 2017 low back on September 5th.
Once again, the USD weakness came despite a rally in the stock market which saw the S+P 500 index gain around 14 points to within touching distance of yet another fresh all-time high. It also comes despite higher bond yields at all points along the maturity spectrum and a very solid set of economic data.

Markit’s version of the manufacturing PMI index rose from 53.9 in November to 55.1 last month. They noted that the latest upturn was supported by faster increases in output and new orders, amid reports of greater client demand. In line with stronger production growth, employment rose further and at the fastest pace since September 2014. Backlogs meanwhile increased at the quickest rate since October 2015 to indicate ongoing capacity pressures. Supply chain delays and increased global demand for inputs pushed costs up further, with the rate of cost inflation remaining sharp overall. The latest index reading was the highest since March 2015 and “signaled a solid improvement in the health of the sector”.

For the moment, it seems just that the dollar is falling because it is falling. The technical tail is wagging the fundamental dog. When price action itself is such a dominant feature of trading, investors seek confirmation of the prevailing trend by seeking out the bits of news which support a continuation of the move rather than viewing the incoming information more objectively. Of course, we’ve been here before and a year ago it happened in precisely the opposite direction. All the news was interpreted as dollar bullish post the 2016 Presidential elections and it rose until January 3rd last year. Here we are on that same date, with sentiment arguably as bearish today as it was bullish then….

The US Dollar index opens in Asia this morning at a 14-week low of 91.50.


After a year in which the euro was the best performing of all the major currencies, it got off to a flying start in 2018; with a high in Europe yesterday morning of 1.2077; the highest in over 3 years. It couldn’t sustain its very positive momentum throughout the day, however, and finished in New York around 30 pips below its best level.
Certainly, there was nothing wrong with the economic data. Final December PMI’s for Germany, France and the Eurozone were released alongside all the individual countries which don’t produce ‘flash’ PMI’s around 10 days before the end of the month. Strong rates of expansion in output, new orders and employment pushed the final IHS Markit Eurozone Manufacturing PMI® to 60.6 in December, its best level since the survey began in mid-1997. The PMI was up from 60.1 in November and identical to the earlier flash estimate.
National data signalled further broad-based growth, with business conditions improving across all of the countries covered. PMI readings were at survey record highs in Austria, Germany and Ireland, and remained close to November’s series peak in the Netherlands. Rates of expansion in France and Greece were the fastest for over 17 and nine years respectively. Growth also remained robust, albeit slower, in Italy and Spain.
On this second trading day of 2018, the EUR opens in Asia at USD1.2050, AUD/EUR0.6500 and NZD/EUR0.5900.


The Canadian Dollar continued its recent very strong run yesterday and once again finished at the top of the one-day FX performance table, hitting USD1.2500 (or 80 US cents when quoted the other way round) for the first time since October 20th.
With continued supply disruptions globally, and a ferocious spell of cold weather over much of Canada and North America, NYMEX crude on Friday hit $60.46; the highest since June 2015. Yesterday morning it was higher still at $60.67. For the next few days and into the weekend, the cold snap will become even more extreme. The highest temperature of the day in Toronto on Thursday is projected at minus 18 degrees centigrade with a low of minus 26. Yes, you may need to read that sentence again – a day’s high of minus 18.
As well as oil prices, there is some speculation that the bank of Canada might pull the trigger on another interest rate hike at its January 17th meeting. Markets are currently pricing in about a 45% chance Stephen Poloz will increase the benchmark rate to 1.25 per cent at that meeting and the Governor has previously warned that monetary policy needs to have an element of surprise if it is to be most effective.
The really big test for the CAD will come with December’s employment report on Friday. Before then, the Canadian Dollar opens in Asia this morning at a 10-week low (CAD stronger) of USD1.2510 with AUD/CAD at 0.9790 and NZD/CAD at 0.8890.