Daily Currency Update

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What we can learn from the first few trading days of 2019


On Friday, markets turned around, the US dollar started to weaken and equity markets went full “risk-on” mode following a trifecta of positive announcements:

The US economy posted its strongest job report since February 2018 and wages accelerated at a quicker pace than expected, bringing YoY increase to 3.2%. Non-farm Payrolls climbed to 312k in December, beating the 177k expectation. Federal Reserve Chairman Jerome Powell said “…we will be patient as we watch to see how the economy evolves”. Powell let the market know that the Fed wasn’t on a fixed path to push its benchmark interest rate higher. Fed officials addressed two rate increases for this year, but Mr. Powell said that path could change if recent market volatility causes the economy to slow more than officials anticipate. China’s central Bank took action to release cash into the economy announcing a 1% cut to the Bank’s Reserve ratio (the amount of cash lenders must hold as reserves).

Canada’s unemployment rate was unchanged in December as job creation came in close to market expectations following a surge in hiring during the previous month. On Friday, Statistics Canada noted that the Canadian economy added a net of 9,300 jobs in December on a seasonally adjusted basis.

The Bank of Canada is set to leave its policy rate on hold next week, after data Friday showed that wage growth was still slow and youth employment deteriorated. After the meeting on January 9th, attention is likely to focus on the extent to which the Bank of Canada acknowledges concerns over global growth, weak oil prices and financial market volatility in its statement. However, the Loonie rallied 1.7% versus the US dollar and 2.1% versus the Euro in the last 5 days.

The Eurozone inflation rate has cooled to its lowest rate in eight months. Lower Oil prices and thus slower energy costs were almost entirely to blame for the rate to dip to 1.6% last month. The ECB’s target is just under 2%.

British businesses and consumers held off on making purchases in the final quarter of last year according to data that showed the economy is heading towards near stagnation ahead of the Brexit Deadline. Economic growth was just 0.1% overall last quarter according to IHS Markit.

With the AUD jumping to a three-week high, markets will be paying special attention to Headlines coming from the US-China preliminary trade talks to be held between today and tomorrow. Keep an eye on the 0.7150 level on any positive news. There is also a big concentration of option positions (almost $2bn) expiring between Wednesday and Thursday around 0.71, which should act as short-term support.

The New Zealand Dollar remains relatively unchanged to open the new year, sitting just above the 0.67 level at 0.6715 on Wednesday. Moving into the new year, trading remains limited as most of the world continues to enjoy the festive season, including New Zealand.