Home Daily Commentaries USD steadies after FOMC. Focus now back on incoming economic data. EUR stronger after solid PMI surveys but AUD slips below 80 US cents

USD steadies after FOMC. Focus now back on incoming economic data. EUR stronger after solid PMI surveys but AUD slips below 80 US cents

Daily Currency Update

Like a prize fighter on the ropes, the US Dollar keeps getting knocked down each time it staggers to its feet. On Wednesday, its index against a basket of major currencies opened at 88.90 but was then pushed steadily down to a low point in the European afternoon of 88.52. After the latest FOMC Statement – which reads very slightly more hawkish than the December version – it climbed back earlier this morning to 88.98 before once again heading a little lower.

Putting two FOMC Statements side by side always feels a bit like the job the Kremlinologists had back in the Soviet-era when they’d look at a photograph of the Politburo and see who had moved a pace or two to the left or right, who was missing and who were the fresh new faces. The Fed said that, “the labor market has continued to strengthen and economic activity has been rising at a solid rate. Gains in employment, household spending, and business fixed investment have been solid, and the unemployment rate has stayed low. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent”. So far, pretty much the same faces as December’s photo! But, whereas last month inflation was expected to, "remain somewhat below 2 percent in the near term", this line has been dropped and instead, "Inflation on a 12 month basis is expected to move up this year”. For choice, your author interprets this is a slightly more hawkish stance and the market-implied probability of a hike at the March 21st meeting has risen to 83%.



With the two political and monetary policy set-pieces of this week now out of the way, there’s a whole bunch of US economic data over the next 24 hours. This morning brings the weekly jobless claims, both versions of the manufacturing PMI survey (Markit and ISM) as well as construction spending. Tomorrow is the first Friday of the month so it’s the non-farm payrolls and earnings numbers plus factory orders, durable goods and the Michigan consumer confidence survey. The Atlanta Fed will be updating its GDP forecast later this evening and the USD index opens in North America this morning at 88.75 as 10-year bond yields are back up at 2.75%.

Key Movers

The Canadian Dollar has held firmly on to a US 81 cents big figure since early Tuesday morning. In USD/CAD terms, this equates to 1.2345. In yesterday’s North American morning, this pair extended the move down to 1.2263; a level not seen since late-September last year. It would have to fall all the way to 1.2195 for the CAD to hit 82 cents and during the whole of the last year, USD/CAD spent only a couple of weeks in September below this level.


Stats Canada yesterday reported that real gross domestic product increased 0.4% in November, with widespread growth across industries as 17 of 20 industrial sectors increased. Goods-producing industries rose 0.8% after declining 0.5% in October. November's gain was mainly due to increases in the manufacturing and mining, quarrying and oil and gas extraction sectors, partly as a result of restoration in production capacity. Indeed, the manufacturing sector was up 1.8% in November, the largest monthly increase since February 2014 as the majority of subsectors grew.

There are more Canadian numbers to come today when we get the leading indicator and the manufacturing PMI report. The Canadian Dollar opens this morning in North America at USD/CAD1.2320, AUD/CAD0.9850 and GBP/CAD1.7535.


The EUR reached a best level of USD1.2470 early Wednesday, then abruptly turned around to lose a quick 70 pips either side of the FOMC Statement. Overnight in Asia and during the European morning, it has regained most – but not all – of these losses and is within one cent of the 3-year high it touched during the ECB Press Conference this time last week.

In this morning’s economic news, final Eurozone Manufacturing PMI printed at 59.6 in January, down from December’s record high of 60.6 and identical to the earlier flash estimate. The PMI has signaled expansion in each of the past 55 months. Markit’s Press Release notes, “The eurozone manufacturing sector made a strong start to 2018. Although January saw rates of growth in output and new orders ease from near-record highs at the end of last year, they remained among the best seen since the survey began in 1997.” Companies indicated that they were experiencing solid inflows of new business from both the domestic and export markets during January whilst manufacturing employment rose for the 41st successive month in January. The rate of jobs growth remained substantial and close to the survey record highs achieved in November and December of last year.


Given the first working day of the month falls on a Thursday, we won’t get to see the service sector numbers until Monday next week. For today, the EUR opens in North America at USD1.2430 and EUR/CAD1.5315.


The British Pound continues to experience relatively wide daily trading ranges. As recently as Tuesday morning, GBP/USD was below 1.4000 before then jumping almost 2 cents. After a half cent drop post-Fed, in early European trading this morning it added nearly another cent to a high of 1.4265; its best level since the day of the ECB meeting last week.



There has been little or nothing on the UK data calendar which is obviously GBP-positive. The manufacturing PMI survey saw a further easing in the rate of expansion of the sector. At 55.3 in January, the index was down further from November’s 51-month high and at its lowest level since June last year. The Press Release noted, “The UK manufacturing sector reported an unwelcome combination of slower growth and rising prices at the start of 2018. Encouragingly, despite the slowdown, the latest survey is consistent with production rising at a solid quarterly rate of around 0.6% in January, with jobs also being added at a faster pace. However, output growth has slowed sharply since last November’s high, and the more forward-looking new orders index has slipped to a seven-month low. The trend in demand will need to strengthen in the near-term to prevent further growth momentum being lost in the coming months”.



The EU could not have made it clearer that the better trade deal the UK wants after 2019 depends crucially on accepting the so-called “four freedoms” of the Single Market: free movement of goods, capital, services and labour. Yet, speaking with journalists on her China trip, the Prime Minister said that that EU citizens who arrive during the post-Brexit transition period must not have the same rights as those who came before. It sounds like another row with the EU is brewing… After its gains of the past two days, the GBP opens in North America today at USD1.4235, GBP/CAD1.7540 and GBP/AUD1.7810.


Having spent fewer than 20 days in the past year above 80 US cents, AUD/USD was always going to require a much weaker US Dollar or stronger domestic economic data to sustain its recent climb higher. It hasn’t had either of those and a slide which began in the North American morning on Thursday has extended further in Europe today to return the pair on to a 79 cents handle for the first time since Tuesday last week.

The first day of the month brings manufacturing PMI surveys around the world and Australia’s version - which is co-produced by Markit and CBA – was the first of 24 to have been released so far today. The headline PMI fell from 57.1 in December to a four-month low of 55.4 in January. The Press Release seemed far more upbeat than the actual numbers and noted, “Growth of Australia’s manufacturing sector was sustained during January, underpinned by strong expansions in both output and new orders. In turn, greater inflows of new business encouraged firms to raise employment… In line with greater production requirements, firms hired additional staff. Although the rate of job creation eased slightly, it remained relatively marked. Payroll numbers have expanded in each month since September 2016”.



The RBA’s commodity price index increased by 7.1% in SDR terms in January, after increasing by 4.5% in December. Coking coal and iron ore prices led the increase, whilst the rural and base metals sub-indices also increased in the month. In Australian dollar terms, the index increased by 4.6% in January. Commodity prices were certainly one of the factors which helped the AUD rise last month, along with lower volatility across asset classes. We’ve already seen a big jump in volatility over the past few days and if commodities don’t sustain recent rises, then the outlook for the AUD will look much less positive. The Australian Dollar starts in North America this morning at USD0.7995, with AUD/NZD at 1.0885 and AUD/CAD0.9855.


The New Zealand Dollar has done pretty well after its mauling the previous week. For a few hours around lunchtime in Europe on Wednesday, NZD/USD was back on a 74 cents ‘big figure’ though it couldn’t sustain this level post-Fed and has subsequently eased back to USD0.7340. Against its Aussie cousin, however, the Kiwi has performed very impressively. The AUD/NZD cross on Monday hit a 7-week high of 110.70 but this morning is down at 1.0885; back exactly to where it was before the soft NZ CPI figures last Wednesday evening.

We wrote yesterday how the New Zealand Government had gotten a boost from credit ratings agency Standard and Poor’s, which reaffirmed its existing sovereign rating for New Zealand, saying, "The economy is wealthy and resilient, reflecting decades of structural reforms… Our ratings reflect solid fiscal performance and our expectation that higher government spending will not materially weaken the country's fiscal profile." Today, it received a further boost from an opinion poll showing support for the governing Labour Party surged to its highest level in more than a decade and approval ratings jumped for pregnant Prime Minister Jacinda Ardern. Support for Labour has surged 5.4 points since September’s fiercely contested election to 42.3 percent, its highest since it last held government in 2007. The number of respondents naming Ardern as their preferred prime minister also jumped 8.3 points to 38 percent since the last poll in September, overtaking National Party leader Bill English on 26 percent.

Friday will be a day with plenty of economic numbers locally. We’ll have consumer confidence, building permits and the net migration statistics for December. Ahead of all that, the New Zealand Dollar opens this morning in North America at USD0.7340 and NZD/CAD0.9045.

Expected Ranges

  • USD/CAD: 1.2260 - 1.2390 ▼
  • EUR/USD: 1.2350 - 1.2465 ▼
  • GBP/USD: 1.4130 - 1.4330 ▼
  • AUD/USD: 0.7950 - 0.8060 ▼
  • NZD/USD: 0.7280 - 0.7415 ▼