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Last week recap
Last week recap
United States Dollar
USD is broadly weaker against major peers on the back of comments from President Trump over the weekend that the USD is too strong, and it is prohibiting for business, taking further jousts at US Fed Chair Powell as someone who ‘likes raising interest rates’.
The Trump administration has taken an aggressive posture towards the UK on post-Brexit trade talks, demanding greater access to the UK market for its agricultural products and guarantees that London would not manipulate its currency. The US Trade Representative released an 18-page document seeking ‘comprehensive market access for US agricultural goods in the UK’ through the reduction or elimination of tariffs- something the US has struggled to negotiate with the EU previously.
Trump failed to secure a deal with North Korean Leader Kim Jong Un in Hanoi as the leaders cut short a summit designed to revive the path to denuclearisation. Trump stated the two had made progress since their first meeting last June, but the US is not ready to accept the North Korean demand to lift all sanctions.
CAD fell 1.3% against the US dollar on Friday on the back of oil plunging 2.6%, PMI showing signs of a slowdown (52.6 vs previously 53) and Q418 GDP numbers coming in at 0.4% annualized versus an expected 1.0%. The anecdote was that the GDP data was incorrectly announced early on Statistics Canada’s website, giving some market participants an early advantage on the release which might have exacerbated the correction.
Despite Governor Stephen Poloz defending the Bank of Canada’s five rate increases since mid-2017 a week ago, the new economic data released on Friday suggests that the BoC has enough reasons to keep its key interest rate on hold. Furthermore, the Loonie may stay under pressure if crude oil can’t push higher and Trump is not helping by opposing higher oil prices.
Brussels suffered a humiliating defeat in its plans to place Saudi Arabia and 4 US territories on a Money Laundering Blacklist after almost unanimous opposition from EU member states. 27 of 28 Countries, led by the UK, France and Germany blocked publication of the list which has also prompted fury across Washington and Saudi Arabia. If passed, EU banks would have had to have carried out enhanced checks on funds from the named territories.
The last time the 2yr German Bunds yields were trading at current levels, EURUSD was at 1.17. This is helping to provide insight into the market’s short FX positioning and EUR’s status as a funding currency.
UK Manufacturer’s Confidence business outlook fell to its lowest level in over seven years last month as growth in new orders tailed off and firms ramped up stockpiling of raw materials in preparation for Brexit disruption.
The GBP continued its sweep higher last week and moved to a 7-month high as investors laid bets that the UK looks more likely to avoid a no-deal Brexit, but it remains uncertain if the rally will keep going. It moved above 1.33 against the USD last week as Hard-line Brexiteers said they would support Mrs May’s deal if the Irish Backstop was worded in a certain way. The implied probability of a No-Deal Brexit dropped from 36% to 16.6%.
A raft of data is out of Australia this week with the RBA cash rate decision on Tuesday and RBA Governor Lowe set to give a speech. It’s important to note that the data to be released for the Current Account Balance and GDP are for Q4 2018 when activity in the economy decelerated sharply. 4Q GDP is out on Wednesday but keep in mind the RBA has previously signalled a weaker GDP outlook for 2019.
New Zealand Dollar
The ANZ business confidence index dropped from -24.1 in January to -30.9 in February, continuing to indicate that business is cautious about the outlook. Adding fuel to an already soft Kiwi was weak Chinese data and upbeat US data.
With little domestic data this week, investors will be focused on the Reserve Bank of Australia's rate decision Tuesday. Another key release is Manufacturing Sales in Q4, on Thursday which came in at -0.3% in the previous quarter.
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