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USD ends weak, AUD steady, GBP choppy

By Nick Parsons

The US Dollar ultimately had a very poor week. The first few days were dominated by President Trump’s Asia trip and his meetings passed relatively uneventfully in Japan, South Korea and then China before he moved on to Vietnam at the end of the week. The @POTUS Twitter feed had nothing controversial and the President negotiated his way quite skillfully through a joint Press Conference with Chinese Premier Xi on Thursday morning In the first 3 ½ days of the week, the USD index against a basket of currencies was essentially stuck in a range from 96.40-96.84. By Thursday afternoon in New York, however, the mood turned more negative in the US stock market as it appeared that the President’s tax reform bill would be either delayed or substantially watered-down. A lot of hope for the USD had been based on faster economic growth, infrastructure spending and the possibility of tax breaks for the repatriation of foreign currency deposits. Amidst political wrangling in the House and Senate, the S+P 500 index had its worst session in 3 months and the USD index slid to end the week at 94.10; its lowest close since October 26th.

The Canadian Dollar has had a very good November so far. It hasn’t been a one-way trade because of the volatility of incoming economic data but it has thus far been the strongest of all the major currencies. It began last Monday in Sydney at USD1.2763 and after a bit of a wobble Tuesday which saw the pair back up from 1.2702 to 1.2797, it was then a steady grind lower to end the week at 1.2689. The Aussie-CAD cross fell from 0.9765 to 0.9720 whilst the Kiwi-CAD fell a little bit less from 0.8715 to 0.8700. A very thoughtful speech from Bank of Canada Governor Stephen Poloz to the Montreal Council on Foreign Relations didn’t offer any fresh clues about the currency but was a staunch defense of inflation targeting. As oil prices strengthened throughout the week, Canada’s status as a major shale-gas producer certainly helped underpin the CAD. NYMEX crude rose from $55.93 to $57.08 on the week whilst Natural Gas rose from $3.07 to $3.26; its highest in more than five months. We’ll see at the end of next week what impact these higher oil prices are having on CPI in Canada, as well as the United States.

All currencies are relative prices and if one goes down, another must by definition go up. The GBP ended the week a bit higher against the US Dollar and so do did the euro; albeit only modestly. The highlight for the Single Currency was the European Commission’s updated economic forecasts for the Eurozone economy. Back in Spring, it forecast euro area GDP growth of 1.7% in 2017 and 1.8% in 2018. These numbers have now been revised up to 2.2% and 2.1% with next year now seeing the economy growing at its fastest pace in a decade. European Commissioner Pierre Moscovici said, “We have entered a new phase of the economic recovery, with stronger growth driven by resilient consumption, the global upswing, loose financing conditions and falling unemployment”. Though still very high, unemployment in the euro area is expected to average 9.1% this year, its lowest level since 2009, dropping to 8.5% in 2018 and 7.9% in 2019. The EUR opened last Monday morning around 1.1615 and dipped down to a low of 1.1561 just before Tuesday’s US open. From that point it climbed slowly but steadily to a high of USD.1166 before ending week at 1.6662. The AUD/EUR cross rate began at 0.6585 and touched a high of 0.6625 on Thursday before ending Friday on its low at 0.6565. NZD/EUR, meantime, finished the week exactly unchanged at 0.5944.

It was a roller-coaster week for the British Pound with a mix of good and bad economic data and a great deal of political uncertainty for markets to digest. All the numbers on the consumption side of the UK economy look pretty weak. Turnover in the residential property market continues to slow and retail sales are suffering from the squeeze in real disposable incomes. Average earnings are growing around 2% y/y but CPI is running at 3%. The back-to-school period was quite soft for retailers and though Christmas might come to the rescue, there seems to be plenty of belt-tightening ahead of the festive period. New car sales are running almost 10% lower than the same period a year ago. On the production side of the economy, though, things look a little better with manufacturing output up for a fifth consecutive month and the latest trade figures showing exports rose 4.5% and imports rose just 0.4%. In political developments, Prime Minister Theresa May lost a second Cabinet Minister in 10 days but once again avoided a bigger reshuffle of her Government by making what was seen as a “like-for-like” appointment which kept the same balance of both gender and Brexit support. GBP/USD began the week at 1.3076 and having been as high as 1.3220 after Friday’s economic data, ended the week at 1.3190. Against the Aussie Dollar, GBP rose from 1.7087 to 1.7220 whilst against the Kiwi Dollar it gained exactly one cent from 1.8927 to 1.9027.

The Aussie Dollar ended the week pretty much where it began against a USD which lost quite a bit of ground late Thursday and into Friday. AUD/USD opened last Monday in Sydney at 0.7650 and in one of the quietest weeks in recent memory remained stuck in a range of less than 60 pips from 0.7636 to 0.7694 before ending at 0.7659. The RBA Statement on Tuesday noted, “forecasts for growth in the Australian economy are largely unchanged… The higher exchange rate is expected to contribute to continued subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.” Friday’s SoMP was a bit more upbeat, “The Australian economy is expected to expand at a solid pace over the next couple of years, and labour market developments have been quite positive of late” but there was no indication of any hurry to be raising interest rates any time soon. Against the NZD, the cross slid slowly but steadily all week to end around half a cent lower at 1.1048.

The Kiwi Dollar had a slightly better week than its Aussie counterpart but still only managed to gain around 50 pips against a generally weak US Dollar. The pair opened in Wellington last Monday morning at 0.6907 and closed in New York on Friday evening at 0.6931. The overall range was somewhat higher than for AUD with 88 pips separating the high of USD0.6972 and the low of USD0.6884. The highlights of the week were an RBNZ Statement and forecast track which showed the Bank now sees rates rising in Q2 2019 rather than in Q3 2019 as it had previously forecast. In reality this is a tiny shift and we’re still talking 18 months away, but it was enough for the Kiwi Dollar to catch a bid immediately after the numbers were released. By Friday, however, the strength was unwound when Finance Minister Grant Robertson said Robertson said the RBNZ’s 2% inflation target could be up for discussion and a dual mandate, targeting both inflation and employment, “may mean looser policy in some instances.” The week ahead sees very few economic numbers released and another narrow trading range seems likely for the NZD.