Canadian Dollar waiting for retail sales and CPI data after strong wholesale trade numbers Wednesday
Thursday 1 January, 1970
Daily Currency UpdateIn a stark illustration of the sometimes random nature of foreign exchange markets, USD/CAD reached a 5-month high of 1.2912 on Tuesday before tumbling yesterday to a low of 1.2823 which left the Canadian Dollar as the second strongest currency of the day after the EUR. The CAD hasn’t quite held on to all of it’s gains overnight in Asia and Europe but the moves highlight what can happen even without the normal catalysts of economic data or political news. Yesterday’s wholesale sales numbers were certainly much stronger than expected, rising +1.5% to $63.0 billion in October, more than offsetting the 1.1% decline in September. Gains were reported in six of seven subsectors, together representing 81% of total wholesale sales. The machinery, equipment and supplies and the personal and household goods subsectors contributed the most to the increase. Today we’ll get to see how this translates into performance at the retail level. The published consensus is just +0.3% but the so-called ‘whisper number’ is probably a bit higher. As well as October’s retail sales, we’ll also see November’s CPI data. The headline rate is expected up just 0.1% /m to leave the annual rate of inflation unchanged at 1.4%. The core rate ex-food & energy prices is forecast to increase at an annual pace of just 0.9%. With NYMEX crude oil steady around $58 per barrel, the Canadian Dollar opens in North America this morning at USD1.2830 with GBP/CAD at 1.7170.
Key MoversThis is the shortest day of the year in the Northern Hemisphere; a turning point in the calendar from where we can enjoy an extra two minutes of daylight every evening for the next 182 days. It all adds up: two minutes per day, a quarter of an hour per week and an hour per month. The Dollar fell steadily across time zones on Wednesday, unable to gather much support either from strong economic data (existing home sales), higher bond yields or a rallying stock market. By the end of the London afternoon its index against a basket of major currencies had fallen to 92.83; its weakest level for a fortnight. The fall came – and we are wary of inferring causality – as the 3-month cross-currency basis swap (the price of borrowing dollars) suddenly reversed the move of last week which had persistently weighed down on the EUR/USD exchange rate. US 10-year bond yields hit 2.48%; their highest since March, whilst their German equivalent stand only at a 2-month high of 0.41%. The spread between the two of 207bp is the widest since Q2 but it does not seem yet to be a driving factor in currency markets. Nor, for the moment do 2-year US rates of 1.82%, even though their German counterparts still yield minus 70bp; a huge 2.52% yield advantage which the ECB is in absolutely no rush to reverse. For the day ahead in the US, there’s a bumper crop of economic data releases: The third estimate of Q3 GDP, weekly jobless claims, the Philly Fed index, the Chicago Fed index of national activity and then November’s leading economic indicator. The US Dollar index opens in North America at 92.90.
The euro followed up on Tuesday’s rally with a second day at the top of the FX league table on Wednesday; all of its gain coming very late in the European day and in the New York morning. The absolute magnitude of the move was not great – a 40 pip rise from 1.1843 to 1.1885 but the market was so quiet generally that it was enough for the EUR to take top spot. The big event in Europe today is political rather than economic as the Spanish region of Catalonia goes to the polls. The election was called by the Spanish prime minister, Mariano Rajoy, at the end of October when the central government took control of Catalonia and sacked the regional government after it staged an illegal independence referendum and made a unilateral declaration of independence. The latest opinion polls suggest Catalonia is set for a hung parliament, with the pro-independence Catalan Republican Left party (ERC) vying for first place with the unionist, centre-right Citizens party. Article 155 of the Spanish constitution – which allowed Prime Minister Rajoy to sack the Catalan government and call elections – will remain in force until a new government has been agreed and a new regional president elected by the Catalan parliament. For the moment, and indeed for the forseeable future, no government in Europe is willing to support a Catalonian push for independence and the exiled leader of the secessionists, Carles Puigdemont, could well face arrest should he return from Belgium. The EUR opens in North America this morning at USD1.1870 and CAD1.5225.
The British Pound ended Wednesday little changed overall and after selling off briefly in the Asia session on news that Deputy Prime Minister Damien Green became the latest Ministerial resignation from Government, it has subsequently regained these losses. It has also been quite resilient in the face of disappointing numbers on consumer confidence and car manufacturing. Latest industry figures from the Society of Motor Manufacturers and Traders (SMMT), show a 4.6 decline in the number of cars rolling off assembly lines in November to 161,479, taking annualized output to 1.69 million. This is an 18-month low after deliveries to the domestic market collapsed by more than 28 per cent; Only 15 per cent of UK cars built in November — 24,276, down from 33,745 in the same month last year — stayed in the home market, indicating rising nervousness among buyers. If the weak trend persists in December, UK car production will have suffered its first annual fall since 2009, when Britain was in the depths of the financial crisis. In that year, production plunged 31% to 999,460 cars. Separate figures earlier today by GfK showed UK consumer confidence fell again in December. The index fell by one point to -13, marking almost two years of declining consumer confidence. As their Press Release noted, “We need to see several issues move on before the downward trend of the consumer mood changes. We need to have a better sense of how Brexit will pan out, and also of how quickly and how far interest rates will rise. But none of this will be resolved quickly so there’s every likelihood that 2018 will take us lower. The Pound opens in North America this morning at USD1.3365 and EUR1.1265 with GBP/CAD at 1.7150.
Over the past 48 hours, AUD/USD has been stuck in a 32 pip range from 0.7647 to 0.7679 with little in the way of catalysts or investor enthusiasm to move it one way or the other. The fact that it has held on to a US 76 cent handle is itself a positive development after a period from mid-September when the pair lost more than 5 cents from its 0.8050 peak. Whether it can be sustained if the interest rate differential with the United States across all parts of the maturity spectrum continues to narrow is still the big question for 2018. Having amused everyone yesterday with their “Seasonally adjusted greetings”, which looked at some of the quirkier numbers around Christmas, the official statisticians at the ABS separately drew some insights into Australia’s ageing population. They noted that in 2016, nearly one in every six people (16 per cent) was aged 65 years and over, an increase of 664,500 since 2011. Additionally in 2016, there were almost half a million people (486,800) aged 85 years and over, an increase of around 85,000 people over the past five years. In 2016, over a third of people aged 65 years and older (37 per cent) were born overseas. About two thirds of these (67 per cent) were born in Europe, while almost a quarter of older overseas born people (24 per cent) reported that they were born in England. While the majority of older people (82 per cent) only spoke English at home in 2016, Italian (3.2 per cent) and Greek (2.2 per cent) were among the most commonly reported languages other than English. The AUD opens in North America this morning at USD0.7665 with AUD/NZD at 1.0950 and AUD/CAD0.9835.
After its very strong performance last week, the New Zealand Dollar was much more mixed on Monday. It rose against the US and Canadian Dollars, was down a little against the euro and Australian Dollar and fell somewhat more against the British Pound. As with the AUD, it couldn’t get back to Friday’s highs against the USD with an intra-day high of 0.7027 a couple of pips shy of last week’s best level. Overnight we have seen ANZ’s business confidence survey. It was this which did the greatest damage to the Kiwi Dollar a month ago when the headline measure plunged 29 points to an 8-year low of -39. Unfortunately, there was no discernable pick-up in December: a net 37.8% of respondents expected the economy to deteriorate over the year ahead. Digging into the details of the survey reveals one bright spot. Business expectations for their own firms to grow in the next year picked up to a net 15.6% of respondents, from 6.5% in November. The historical average for this series is +28. As the ANZ noted in their Press release, “The economy is doing the hard yards at the moment. Positive forces remain, but the turn in housing, flattening off in net migration and lack of capacity in the construction sector are all dampening near-term growth." NZD/USD opens in North America this morning at 0.7015 with NZD/CAD at 0.9020. In a busy week for New Zealand economic data, tomorrow brings the trade balance and finally on Thursday we’ll get Q3 GDP.
- USD/CAD: 1.2750 - 1.2895 ▼
- EUR/USD: 0.6545 - 0.6580 ▼
- GBP/USD: 0.5805 - 0.5865 ▼
- CAD/AUD: 1.0125 - 1.0205 ▼
- NZD/USD: 1.1050 - 1.1120 ▼