The Australian Dollar (AUD) has traded lower over the week coming off last week’s high of 0.7885 to trade as low as 0.7790 Friday morning. FOMC highlighting a hawkish tone early in the week suggesting the US economy was building at faster than expected pace. The Australian Dollar sold early in the week after the RBA hinted they were in no hurry to raise rates based on weaker than expected wage growth suggesting a wait and see style approach. Friday saw Australian Dollar (AUD) turn positive after market participants lost support for the US Dollar, I suspect sentiment of the pace of the “real” US economy may not be as fast paced as one thinks. Next week is a quiet week for local data with only quarterly Private Capital Expenditure due on Thursday. Reasonable levels for buyers of USD if the strength of US Dollar continues.
New Zealand (NZD)
The New Zealand Dollar (NZD) has drifted off last week’s high of 0.7435 down to 0.7305 Friday on general US Dollar support during this week. FOMC minutes seemed to show a hawkish tone based on the economy building at a faster pace than predicted. Equity prices have continued to rise much to the surprise of markets with the 10 Year Bonds also rising to a multi- year high of 2.94. Friday buyers of US Dollars (USD) left the table as speculation grew that perhaps the US economy is not as rosy as the Federal Reserve portrays. NZD is higher to 0.7340 but still has ground to make up to finish the week on a positive note. At some point the US Dollar (USD) will gain momentum based on economic factors we have spoken about over the past two weeks or so, buyers of USD should consider current prices as we suspect the NZD could be trading at lower levels later in the year.
United States (USD)
The US Dollar traded broadly weaker Thursday morning as the minutes from the Federal Reserve’s January monetary policy meeting published. The Fed meeting seemed to highlight a more hawkish tone, some investors being a little perplexed as equity prices rise. The 10 year Treasury Bond traded higher over the announcement taking it to 2.94% the highest level since January 9th2014 and 2.89 Tuesday. This could threaten the pace of short dated interest rates, suggesting further support for interest rate hikes, fears of the central bank raising rates more than the previously forecast 3 times for 2018 intensify. The USD Index sits at 90.12- 100 points higher than Mondays open of 89.20
United Kingdom (GBP)
Mixed employment figures coming out of the UK overnight Wednesday saw the Unemployment Rate jump from 0.1% to 4.4% as 7,200 less people claimed unemployment related benefits over the month of January. The BoE governor Carney didn’t commit to a decisive plan regarding future interest rate plans but hinted the downsizing of stimulus over the next few years is likely. Cable whipsawed between a low of 1.3900 and 1.4002 against the greenback (USD).
The EURO struggled to ward off 1.2300 Thursday against the greenback, sliding all the way down to trade at 12 February levels. Softer PMI Services and Manufacturing Data for February published Thursday showed weaker than expected figures, PMI dropped from 55.3 in February from 57.3 in January as economists had expected a reading of 57.0. Forecasts are for Germany’s growth to continue to improve as GDP continues to pick up. EUR support remains at 1.2240 with topside limited to 1.2500 in the short term. German IFO Business Climate and most importantly ECB Monetary Policy Meeting Minutes print to close the week.
Weak economic data out of Japan Thursday was disappointing with the PMI Manufacturing February numbers coming in at 54.0 versus 54.8 in January. Trading from the open Monday we have seen a reversal of last week’s JPY momentum, the USD pushing back to 107.00 levels. With the 10 year US and Japanese bond spread widening out to 290 points this has pushed the US Dollar/Japanese Yen (USD/JPY) to a high of 107.80 Thursday. As the bank of Japan tries to keep yields close to zero this widens the gap and puts increasing pressure over the JPY. Over the long term as the US Fed tighten rates this should support the USD. With the USD/JPY dropping from 112.50 this year it may have a lot further to travel before we see convergence of the two economies monetary policies.
The Canadian Dollar (CAD) traded at yearly highs this week against the US Dollar (USD) to a high of 1.2700 as it brushed off the 1.2600 handle in one-way traffic. With a lack of fundamental data published locally the pair has been widely bought on a US Dollar resurgence based on FOMC bond yields and flat oil prices. With the Canadian Dollar’s large weighting on Crude Oil value this has kept the CAD under pressure. The recent low of just under 58.00 per barrel offers support for Crude, and ultimately the Canadian Dollar, we watch oil prices with interest as Crude volumes are expected to increase over 16% in 2018. Coupled with the US economy improving and continued weaker oil prices this pair may have a look at the March 2017 high of 1.3700 in 2018