Home Daily Commentaries It was almost a three-way split at the top of our leader board on Tuesday, though the Canadian Dollar was ultimately just edged out by both the AUD and NZD.

It was almost a three-way split at the top of our leader board on Tuesday, though the Canadian Dollar was ultimately just edged out by both the AUD and NZD.

Daily Currency Update

It was almost a three-way split at the top of our leader board on Tuesday, though the Canadian Dollar was ultimately just edged out by both the AUD and NZD. On Monday, USD/CAD printed on a 1.26 ‘big figure’ for the first time since late February. Just 24 hours later, it moved on to 1.25 for the first time since February 20th. The strength of the CAD dragged the GBP/CAD cross rate down to a low of 1.7840; its weakest since March 13th though it has ropean morning session.ecovered around half a cent during today’s Eur

After Monday’s very healthy BoC Business Outlook Survey, the focus yesterday switched towards the

housing market. January’s building permit numbers had been unusually strong with a 5.6% m/m gain

so it was always likely that the February numbers would show some pullback. The outturn was that

Canadian municipalities issued $8.2 billion in building permits in February, only a 2.6% m/m drop.

Single-family homes as well as the commercial and institutional components saw lower levels of

construction intentions. The total value of building permits decreased in six provinces in February.

The largest declines were in Quebec and Ontario, while Alberta reported the largest increase followed

by Manitoba. A separate report from the Canada Mortgage and Housing Corp said housing starts

slowed slightly in March. The seasonally adjusted annual rate of starts declined to 225,213 in March

from February’s upwardly revised 231,026 had forecast a sharper decline to 218,000 homes.

More data on housing comes later this week, with the next BoC monetary policy meeting next

Wednesday. Before then, Thursday brings new home prices and Friday is nationwide home sales. The

Canadian Dollar opens in North America at USD/CAD1.2610, AUD/CAD0.9770 and GBP/CAD1.7890.

Key Movers

Volatility in US equity markets now seems a permanent feature of the investment landscape. Even on Monday when the DJIA finished little changed on the day, the index had risen 400 points then given back the whole of its gains in the last two hours of trading. Against this background, the performance of the US Dollar looks pretty tame. On Tuesday, the USD index against a basket of major currencies rose from 89.45 to 89.55 in early trading but then fell steadily during the day to 89.25 having at one point reached a near-one week low of 89.15. Overnight in Asia and this morning in Europe, the USD is steady just below this level but although it looks technically weak and could easily break down on to an 88 ‘big figure’, it would still mean that its entire range over the last 3 weeks has been less than 1¼ points.

Speaking on Bloomberg television from Beijing yesterday, Federal Reserve Bank of Dallas President

Robert Kaplan said trade issues between the U.S. and China won’t get resolved soon and warned of

potential damage if the dispute is prolonged. “I really do think it is too early to judge how this is going

to affect the economy. But I do think the rhetoric, if it goes on for long enough at this level, is having

somewhat a chilling effect… I’m still hopeful when we look back a year or two from now you’ll see

very little actually done in the way of tariffs that were implemented,” Kaplan said. “That would be my

base case, and I think we are in the early innings of this.” Equity markets will hope very much that his

judgment proves correct.

As well of the Minutes of the March FOMC meeting during the afternoon, this morning brings the

latest US inflation figures. Consensus expectations are for the headline rate to edge up from 2.2% to

2.3% with the core, ex-food & energy, measure seen rising from 1.8% to 2.1%. The Federal Reserve

Bank doesn’t have a CPI target – instead it focuses on PCE – but numbers above 2% for both the

headline and core will cement expectations of further monetary policy tightening whatever the huge

day-to-day swings of the US stock market. The USD index opens this morning in North America

around 89.00.

The Single European Currency finished in second place to the Canadian Dollar on Wednesday as investors wondered whether Mr Nowotny’s remarks on Tuesday might, in fact have been part of some cunning plan to introduce the idea of a 20bp rate hike without Mr Draghi himself having to be implicated and blamed for a policy U-turn. Conspiracy theorist love these mind-games and we’ll never have a definitive answer, though EUR/USD did manage to extend gains up to a high just above 1.2385; its highest level in two weeks before closing at 1.2365. Overnight in Asia and this morning in Europe, the euro has lost ground and is almost half a cent below yesterday’s best levels.

Eurozone industrial production was much weaker than expected in February, as a jump in energy output failed to offset a slump in the production of capital goods and consumer goods. The European Union’s statistics office Eurostat said industrial production in the 19 countries sharing the euro fell 0.8% m/m for a 2.9% y/y rise, much weaker than the +0.1% m/m increase which had generally been expected. The softness in February was due to falling production in all categories — intermediate goods, capital goods and durable and non-durable consumer goods — except energy, the output of which surged 6.8% on the month after a 1.1% monthly drop in January. By country, weakness in Italy and Germany offset strength in Spain and France. Elsewhere, big declines in Portugal and Ireland were the main constraints, while production rose solidly in the Netherlands.

Today brings speeches from the ECB’s monetary policy heavyweights Coeure and Weidmann and the European Central Bank will publish its account of the March monetary policy meeting. The EUR opens in North America today at USD1.2335 and EUR/CAD1.5525.

The British Pound ebbed and flowed quite a bit on Wednesday. At times it was out at the top of our one-day performance table but ultimately ended somewhat mixed; little changed against the USD and EUR, up against the Australian and New Zealand Dollars and down against the CAD. GBP/USD reached a one-week high of 1.4215 before closing around 1.4175. In Europe this morning, the Pound fell to a low of USD1.4150 then rallied around a quarter of a cent but is still firmly below GBP/CAD1.80.

In economic news, the UK’s property surveyors have issued the most downbeat assessment of the housing market for five years. The well-respected Royal Institution of Chartered Surveyors survey said that in March demand from buyers fell for the 12th month in a row, new instructions from sellers declined for the seventh consecutive month, and prices were flat nationally. RICS measures confidence in the property market by balancing surveyors seeing price rises against those seeing price falls. It said the figures were the lowest since 2013 with declines in London and the southeast being offset by gains in the East Midlands, Northern Ireland and Wales. The RICS Chief Economist said, “The findings provide little encouragement that the drop in housing-market activity is likely to be reversed anytime soon… Apart from the implications this has for the market itself, it also has the potential to impact the wider economy contributing to a softer trend in household spending.”

The British Chambers of Commerce today published what it claims to be the UK’s largest and most authoritative private-sector business survey. Based on the responses of over 7,100 businesses, the survey shows that UK economic growth remained subdued in the first quarter of 2018, despite a strong export performance. It reported that fewer firms in the manufacturing sector saw an increase in domestic orders, and the balance of firms reporting an increase in domestic sales is now at its lowest level since Q4 2016. ““What growth we see in the UK economy is due principally to strong global trading conditions, rather than domestic demand, which remains muted. Uncertainty, recruitment difficulties and price pressures remain persistent concerns for businesses of every shape and size, even if short-term confidence levels remain resilient. Even with a standout performance from manufacturing exporters able to reap the benefits of lower Sterling, the UK economy as a whole is treading water, rather than powering ahead.” The British Pound opens in North America this morning at USD1.4185, GBP/EUR1.1495 and GBP/CAD1.7855.

Wednesday was a day of very tight ranges for the AUD/USD pair, with its entire high-low range across the three main time zones covered by just 30 pips and a close in New York almost exactly where it had begun the day at 0.7760. Overnight in Asia and this morning in Europe, the pair has edged gradually lower but found some support just above 0.7740.

In his speech in Perth yesterday, RBA Governor Phil ‘slow and gradual’ Lowe gave a thorough assessment of the economic differences, and similarities, across Australia’s major States. In aggregate, he noted, “the overall picture for the national economy is one of gradual improvement: businesses are feeling better than they have for some time and they have increased their investment and hiring. It is therefore reasonable to expect that economic growth in 2018 will be stronger than the 2.4 per cent outcome we saw last year.” However, one of his main themes nationally – not just in Western Australia – was “slow growth in wages. Wage increases around 2 per cent have become the norm in many parts of the country. This is in contrast to the 3 to 4 per cent increases that were the norm for most of the past two decades. This change is having a sobering effect on the finances of many households. It is also contributing to inflation being low. The latest data suggest that the rate of wages growth has now troughed, with a pick-up evident in the most recent quarter. A further lift is expected, but it is likely to be only gradual.”

On monetary policy specifically, the Governor said, “it is more likely that the next move in the cash rate will be up, not down, reflecting the improvement in the economy. The last increase in the cash rate was more than seven years ago, so an increase will come as a shock to some people. But it is worth remembering that the most likely scenario in which interest rates are increasing is one in which the economy is strengthening and income growth is also picking up… The Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy.” The Australian Dollar opens in North America this morning at USD0.7750, with AUD/NZD at 1.0500 and AUD/CAD0.9760.

Price action in the New Zealand Dollar across the three major time zones on Wednesday was identical to that of its Aussie cousin: down against the USD in the first part of the day and a recovery during the New York session, all contained within a relatively narrow 30 pip trading range before closing almost exactly unchanged on the day around 0.7360. The Kiwi Dollar has had a good day so far on Thursday morning with the AUD/NZD cross trading down on to a 1.04 ‘big figure’ for the first time since July last year.

The speech today from RBNZ Assistant Governor and Head of Economics John McDermott focused on the evolution of the monetary policy framework over time rather than any fresh message about how the policy itself might currently be changing. In terms of the new arrangements announced by the Labour Government, the Reserve Bank of New Zealand Act will formalise a monetary policy committee (MPC), and add members from outside the Bank, ‘externals’, onto the committee. The Act will allow the MPC to have between five and seven members, but there will be seven initially, and there will always be more internal than external members. All members will be nominated by the Reserve Bank Board and appointed by the Minister of Finance. Details of the first Charter are yet to be determined, but the Minister intends for the MPC to aim to reach decisions by consensus, and for non-attributed votes to be published where there is not consensus. The Minister also intends for non-attributed records of meetings to be published that reflect any differences of view among the MPC.

Statistics New Zealand this morning published March credit card spending numbers. Seasonally adjusted total retail spending on credit and debit cards increased 1.0% during the month, beating consensus estimates of a 0.5% monthly gain. Core retail spending, excluding fuel and vehicles, rose 1.6%. Card-holders across all industries made 151 million transactions in the month. The average value of $49 was unchanged on the year and down from $50 in February. The Kiwi Dollar opens in North America at USD0.7380 and NZD/CAD0.9290.

Expected Ranges

  • USD/CAD: 1.2580 - 1.2715 ▼
  • CAD/EUR: 0.6385 - 0.6490 ▲
  • CAD/GBP: 0.5560 - 0.5615 ▼
  • CAD/AUD: 1.0195 - 1.0285 ▼
  • CAD/NZD: 1.0670 - 1.0825 ▼