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USD again on the back foot; AUD and NZD recover

By Nick Parsons

The US Dollar ended last week at its lowest level since September 25th and after holding steady during the Asian session overnight, has come under further pressure during the European morning. Its trade-weighted index closed on Friday at 92.45 and it has traded as low as 92.31 in London hours, falling against every one of the major currencies we track here. This week, Dr. Yellen is testifying to the Congressional Joint Economic Committee on Wednesday, whilst the Fed’s targeted measure of inflation, PCE, is released Thursday. Recall that the uncertainty over inflation in the November Minutes last week was the main reason for the Dollar’s lurch lower. Interest rate markets continue to fully discount a 25bp rate hike on December 14th but this is no longer much of a prop for the USD. Traders will instead be watching the Senate Banking Committee confirmation hearing on Tuesday for clues as to what next Fed Chief Jerome Powell may be thinking on inflation and monetary policy. For today, we have just the October New Home sales and the Dallas Fed manufacturing index to watch for.

The Canadian Dollar had an extremely quiet night in Asia but right from the start of trading in Europe, USD/CAD moved steadily lower to be around 30 pips below Friday’s closing level. The pair opens in North America this morning at 1.2680; the lowest since last Thursday morning. This is the start of a potentially very busy week for the CAD, with several highlights of note on the Canadian calendar: the Bank of Canada’s Financial System Review on Tuesday and the release of the labour market report and Q3 GDP figures on Friday. Economists are estimating annualized GDP growth of 1.8% in Q3, down from 4.5% in the second quarter. Canada is unusual – indeed it is a world leader – in producing monthly GDP numbers. July was flat m/m whilst in August GDP edged down by 0.1% the first m/m drop since October 2016. In between these two big domestic events, on Wednesday we should see a Statement from the 173rd OPEC meeting in Vienna. NYMEX Crude reached a fresh 2017 of $58.82 on Friday but has slipped around 35 cents overnight to $58.45. The CAD’s reaction to oil prices has recently been quite straightforward, at least until softer economic data were published and this morning’s price action for the currency has been pretty resilient given lower crude. As ever, though, a focus on movements against a weak USD can be somewhat misleading; the CAD has actually slipped on most of its other cross pairs.

The EUR has paused for breath overnight after its rapid rise last week which saw it jump from a low of USD1.1715 on Tuesday morning to a high on Friday of 1.1930. It did manage a best level in European trading of USD1.1951 today but has eased back from there to open in North America at 1.1935. Against the Canadian Dollar it touched a high of 1.5169 in London but opens around 25 pips off this level. For the EUR this week, we could see a repeat of the tussle between economics and politics. Thursday brings the flash estimate of Eurozone CPI in November but before then, concerns about the strength, or otherwise, of German Chancellor’s Angela Merkel’s position are likely to dominate trader sentiment. The immediate loser in the Coalition talks was SPD leader Martin Shulz, though his party may still be able to extract significant concessions as the price for its ongoing support of the CDU/CSU. It may gain control of the Finance Ministry or it may force Merkel’s CSU partner to abandon the proposed 200,000 annual cap on asylum seekers. “Hour zero: country without direction, unity, chancellor?” was how Der Spiegel, Germany’s leading current affairs magazine, summed up the crisis. Stern magazine, meantime, depicted Merkel upside down with the headline: “Free fall . . . end of the Merkel era”. Another fascinating week is in prospect for the Germany, the EU and its Single Currency…

The pound drifted lower in the Asian time zone Monday but from 6.30am London time to late morning it rose 35 pips from USD1.3315 to a best level just over 1.3350 before then giving back a bit of these gains. GBP/CAD, meantime, touched a best level of 1.6945 but then was dragged down around 15 pips to just below 1.6930. After a weekend taken up by yet more twists and turns in the interminable Brexit negotiations, it was a relief to find something more uplifting to talk about today: another Royal Wedding. It is only a couple of months since Prince Harry made his first public appearance with his girlfriend, Meghan Markle, at the Invictus Games in Toronto. A statement issued by Clarence House this morning said, “His Royal Highness the Prince of Wales is delighted to announce the engagement of Prince Harry to Ms. Megan Markle.” The wedding is to be held next year, with the ceremony conducted by the Archbishop of Canterbury. With Prince William’s wife Kate due to give birth late Spring, Royal watchers will have a new baby and a marriage to celebrate. The UK economy and its’ Government may be having a hard time but the Brits do know how to put on a royal spectacle! For the more prosaic matters of interest to currency traders, attention will be on a 6.30pm speech from BoE MPC ‘dove’ Dave Marsden; one of the two members who voted against a 25bp rate hike in November’s 7-2 split decision.

The overnight low for the Australian Dollar came pretty much as their batsmen hit the winning runs against England on the fifth day of the Ashes cricket test match. Having opened around 0.7615, the AUD/USD pair traded down to 0.7596 around 01.30GMT but then took off to trade almost half a cent higher at USD0.7640. It has been pretty similar price action against the Canadian Dollar. From a low of 0.9665, AUD/CAD rose almost 30 points and opens in North America around 0.9690. The week ahead is pretty quiet in terms of economic data with the Australian Bureau of Statistics showcasing its expertise in social statistics. Tuesday brings Marriage & Divorce numbers for 2016 whilst Wednesday is all about Ageing & Caring. The rest of G10 has already published Q3 GDP numbers but Australia doesn’t do so until December 6th. Before then, we get a look at the so-called ‘partial data’ and on Thursday this week it’s Private Capital Expenditure which will be plugged into analysts’ spreadsheets. The same day we’ll also see Building Approvals and RBA Credit numbers. Meantime, it’s radio silence as far as RBA speakers are concerned: the next Board meeting is December 5th (2 days before the BoC meets) so there’ll be no clues about monetary policy from Central Bank officials.

The New Zealand Dollar has not only managed to keep up with a stronger AUD overnight, it has actually managed to very slightly outperform it. The AUD/NZD remains very firmly within the 30 pips range either side of 1.1080 which contained the pair for almost the whole of last week but the stronger Kiwi Dollar has dragged the pair down to 1.1065. Against the US Dollar, the NZD is back on a 69 cents big figure for the first time in over 2 weeks whilst NZD/CAD is up around 20 pips from Fridays close to open in North America at 0.8758. The NZ data calendar looks a little busier this week, but it doesn’t really kick off until Wednesday with the publication of the RBNZ Financial Stability Report and then Acting Governor Graeme Wheeler up in front of a Parliamentary Select Committee. The main interest will likely be on the assessment of the success – or otherwise – of the so-called ‘macro prudential’ controls in the housing market and whether or not these are to be lifted any time soon. On Thursday the ANZ business survey will be closely watched as it’s the first look at a whole fresh month of data since the new Labour-led government was formed. It will be pored over for any sign that the recent sharp fall in the NZD is impacting confidence, activity or inflation expectations.