Home Daily Commentaries Chinese President Xi plays down trade war talk. Stocks rally sharply with AUD and NZD the strongest currencies overnight ahead of US PPI data. GBP and EUR both steady.

Chinese President Xi plays down trade war talk. Stocks rally sharply with AUD and NZD the strongest currencies overnight ahead of US PPI data. GBP and EUR both steady.

Daily Currency Update

The British Pound had a strangely mixed day on Monday. By lunchtime in London it was up against everything except the NZD but by the close of business it had given up all its earlier gains against the EUR and was down also against the CAD and AUD. The so-called ‘cable’ rate hit a session high just below 1.4160 in the European afternoon but then slipped back around a quarter of a cent to 1.4135 with GBP/AUD losing a full cent in just a few hours to 1.8345. Overnight in Asia, GBP/USD has been steady around a midpoint of 1.4130 but is down against both the Australian and Kiwi Dollars.

Figures out on yesterday showed house prices strengthened in March to post their biggest monthly gain since August, according to Halifax, the UK’s biggest mortgage lender. The average price of a UK home rose 1.5% in March to hit £227,871, the highest recorded price. Prices in the three months to March were 2.7% higher than a year earlier, up from the 1.8% annual growth recorded in February. However, Halifax warned that monthly changes could be volatile. Prices fell 0.1% between January and March compared with the previous three months, the second consecutive quarterly decline.

The Guardian newspaper reports that according to a Deloitte survey of chief financial officers (CFOs) at some of the UK’s biggest businesses, companies are now less pessimistic about Brexit after ministers agreed the terms of a transition period with Brussels to smooth Britain’s exit from the EU. Reflecting the views of 106 companies, including almost a quarter of the FTSE 100, the survey found a fifth of business leaders were more optimistic about their firm’s prospects than they were three months ago. On a scale of 0 to 100 for the risks facing their business, the CFOs assigned a rating of 56 for Brexit versus 57 for weak demand as a result of sluggish growth in the economy. Deloitte said this was the first time since the spring of 2016 – before the EU referendum – that Brexit had fallen behind any other potential risk facing businesses, although admitted that some of the weakness seen in the economy will have come as a result of the vote to leave the EU. The Pound opens in Europe this morning with GBP/USD in the low-1.41’s with GBP/EUR in the high-1.14’s.

Key Movers

The USD held very steady throughout Monday’s Asian session and the European morning with its index against a basket of major currencies at 89.75; pretty much where it had closed on Friday evening. From around 7am New York time, however, the USD began a more broad-based sell-off as both GBP/USD and EUR/USD found some good buying interest. By the end of the day, the USD index had lost almost half a point from its intra-day high to 89.45.


After a weekend when he had sounded a bit more conciliatory on trade, President Trump once again took to Twitter to criticize current international trade arrangements. “When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%. Does that sound like free or fair trade. No, it sounds like STUPID TRADE - going on for years!” Yesterday, the US stock market was at one stage up around 1.5% with the DJIA up more than 400 points before a late sell-off in the last hour of trading saw all the gains erased. Overnight in Asia, the DJIA has regained 300 points. It really is quite wild.


Overnight, Chinese President Xi Jinping gave a keynote speech at the Boao Forum – often referred to as the Chinese version of the Davos Forum, which is taking place on the tropical island of Hainan - where he addressed the trade situation. Xi called for an upholding of the multilateral trade system and said dialogue was the way to resolve disputes, diffusing trade tensions with the U.S. He vowed to open sectors of China’s economy from banking to auto manufacturing, increase imports and expand protection to intellectual property: "China does not seek trade surplus. We have a genuine desire to increase imports and achieve greater balance of international payments under the current account." He said countries should "stay committed to openness, connectivity and mutual benefits, build an open global economy, and reinforce cooperation within the G-20, APEC and other multilateral frameworks. We should promote trade and investment liberalization and facilitation, support the multilateral trading system… This way, we will make economic globalization, more open, inclusive, balanced and beneficial to all." The USD index opens in Europe this morning at 89.45.


The euro had a poor day on Wednesday, up against a very weak GBP, little changed against the AUD and NZD, but down against the US and Canadian Dollars. EUR/USD had printed just under 1.2290 in Asia but this proved to be the high of the day. It was knocked down around a quarter of a cent in the European morning by weak economic data and after a very feeble rally then fell another half a cent to 1.2225; its weakest in more than a month. Overnight in Asia, the EUR managed to reach almost 1.2260 before again turning lower but is little changed against the GBP in the low-1.14’s.

Eurozone economic activity expand at the weakest pace since the start of 2017 in March, as rates of increase moderated in both the manufacturing and service sectors. The final Markit PMI Composite Index posted 55.2, down from 57.1 in February and below the earlier flash estimate of 55.3. The headline index has nonetheless signaled expansion in each of the past 57 months. Manufacturing production rose to the lowest extent since November 2016, whereas service sector business activity increased at the weakest pace since August last year. Markit noted that, “National PMI data indicated that the upturn remained broad-based in nature, with output expanding in all of the countries covered. However, signs of a growth slowdown were also widespread, with the ‘big-four’ nations and Ireland all seeing moderations during the latest survey month. March saw the level of incoming new business rise at the weakest pace for 14 months, with slower increases signaled in Germany, France, Italy and Ireland. The pace of expansion held steady in Spain. Growth in new orders remained sufficient to test capacity, however, as indicated by a further solid increase in backlogs of work.”

As for signs of progress towards the ECB’s inflation target, the survey noted, “Price pressures moderated in March, with rates of increase in output charges and input costs both slowing. That said, almost all of the nations reported higher input and output prices during the month, the sole exception being a slight decrease in output charges at Italian service providers… Output charge inflation eased to a three-month low, while costs increased at the slowest pace since last September.” The EUR opens in London this morning at USD1.2235 with GBP/EUR in the low-1.14’s.


The Aussie Dollar’s price action was a bit of a puzzle on Thursday as it slid lower against the US and Canadian Dollars despite some decent local economic data and a US stock market which was more than 1% higher by the end of the London afternoon. From a one-week high in Asia of 0.7725, AUD/USD moved steadily lower throughout the day. It broke down on to US 76 cents before the European open and hit a low just above 0.7675 during the New York morning. By the end of the day, it was up against the GBP, little changed against the EUR and NZD but down against USD and CAD. Overnight in Asia, AUD/USD has printed a low of 0.7660 with GBP/AUD at 1.82.

After a run of decent data this week – overseas trade, retail sales and the performance of services – there were no fresh official statistics published today. Research released yesterday by Digital Finance Analytics (DFA) shows that across Australia, around 956,000 households were estimated to now face ‘mortgage stress’ – the circumstances homeowners face when their income struggles to cover ongoing living costs. As reported on 9News, 'Mortgage stress' is defined as having more money being spent on a monthly basis than income being earned. In many cases, families dip into savings or increase loan borrowings to fund their lifestyle and overcome the 'stress'. The data shows that more than 21,000 households are in ‘severe stress’, or being unable to make repayments at all, and more than 55,000 households risk 30-day bank defaults over the coming year. Household debt is something which the RBA is monitoring closely and helps explain why this week it left interest rates unchanged for an 18th consecutive meeting.

A Reuters survey of 44 analysts plots a very uneventful future for the Australian dollar, which is seen at $0.77 in one-month, $0.78 in three months, $0.77 in six months and $0.79 over a one-year horizon. These median point forecasts disguise a pretty wide spread of views, with analysts’ estimates from as low as $0.70 and as high as $0.86 on a one-year horizon. The Australian Dollar opens this morning in Europe in the high-USD 76’s with GBP/AUD in the low-1.82’s.


The Canadian Dollar had another good day on Thursday, not quite keeping up with the USD but gaining against every other major currency we follow closely here. USD/CAD edged marginally higher from 1.2765 to 1.2770 but on its crosses, GBP/CAD fell below 1.80 for the first time in 3 weeks whilst AUD/CAD fell towards 0.9800 and NZD/CAD fell back on to 92 cents.


Speaking in Quebec City, Canadian Prime Minister Justin Trudeau said NAFTA talks have picked up momentum. “We are in a moment where we are moving forward in a significant way, hopefully there will be some good news coming… Right now, we are having a very productive moment.” Trudeau said his officials are willing to meet as frequently as the U.S. wants to work toward getting a deal, though his country’s ambassador to Washington said on Wednesday there are “still lots of issues” to settle. U.S. Trade Representative Robert Lighthizer said last week he was hopeful they can soon reach a deal “in principle.”

Racking up the air miles, Mr Trudeau’s office announced he will travel to Lima, Peru, Paris and London in an eight-day whirlwind trip later this month. He will be in Lima, April 12-14, Paris, April 15-17 and London, April 17-20 for the Commonwealth heads of government meeting. The theme of the Commonwealth summit is "Towards a Common Future" and the Prime Minister's Office says Trudeau plans to emphasize the need for action on climate change and ocean protection and the need to create economic growth that benefits everyone. The immediate focus for financial markets, however, is today’s Canadian employment report, published at the same time as the US jobs report. The Canadian Dollar opens in Europe this morning with USD/CAD in the high-1.27’s and GBP/CAD in the high-1.78’s.


By its recent standards, the Kiwi Dollar had a pretty ordinary day on Thursday. As with its Aussie cousin, it fell against the USD and CAD, was little changed against the AUD and EUR but rose against a weaker GBP. NZD/USD peaked during the Asian time zone just above 0.7320 and by late morning in London it had lost almost half a cent. The pair very briefly rallied back up to US 73 cents but couldn’t hold it for more than a few minutes and fell back to a low of 0.7265. The AUD/NZD made a marginal fresh 9-month low just below 1.0530 but then rebounded around a quarter of a point during the New York afternoon.

With no official economic statistics scheduled today, we’ll draw instead on Bloomberg’s annual Global Vice index which compares the costs of a weekly basket of six so-called vice goods including cigarettes, alcohol, marijuana, amphetamines, cocaine and opioids across more than 100 countries. New Zealand is the second most expensive country in the world to buy this basket of vice goods and is one of only three countries where the gross weekly cost exceeded US$1,000. At US$1,366, Japan came in as the most expensive, followed by New Zealand at US$1,241 and Australia in third at US$1,028. New Zealand saw the biggest year-on-year increase with Kiwis having to fork out US$261.10 more for a basket of vice goods last year compared to 2016. By comparison, the same basket cost less than $100 in 21 mostly tropical countries, including the Dominican Republic, Congo, Colombia, and South Africa. The Congo was the cheapest of all at just $18 though a quick look at the WHO website shows it has life expectancy of just 57 years… The data in the Bloomberg index was sourced from the UN, World Health Organization, World Bank and International Monetary Fund.

In a Reuters survey of 37 analysts out today, the median forecast put the currency at $0.72 for one month, three months and six months, ticking up to $0.74 in one year. While the median forecasts were narrowly spread, there was far more variety at the extremes, with the highest prediction for 12-months out at $0.8000 and the lowest at $0.6500. The Kiwi Dollar opens in London this morning in the mid-USD 72’s with GBP/NZD in the high-1.92’s.

Expected Ranges

  • GBP/USD: 1.3990 - 1.4190 ▼
  • GBP/EUR: 1.1410 - 1.1475 ▼
  • GBP/AUD: 1.8200 - 1.8305 ▼
  • GBP/CAD: 1.7735 - 1.7975 ▼
  • GBP/NZD: 1.9210 - 1.9390 ▼