The Australian Dollar (AUD) traded to a low of 0.7710 against the USD overnight Thursday the lowest level in 2018 after Thursdays quarterly Private Capital Expenditure published worse than expected knocking the Aussie (AUD) south across the board. Private Capital Expenditure came in at —0.2% vs expectation of +1.0%. On the back of the data estimates for GDP are now getting revised down. President Trump said he would announce trade tariffs next week. A 25% tariff on steel and a 10% levy on aluminum. The US imports over 200M metric tons of steel per year from Australia. With such a bold move its possible Trump may get objections from the World Trade Organisation.
New Zealand (NZD)
The New Zealand Dollar continued its run lower this week, stronger than expected NZ Trade Balance published at -566M, markets were expecting -2710M briefly offering resistance against the greenback in an otherwise depreciated NZD. ANZ Business confidence also printed positive but the New Zealand Dollar (NZD) fell further dipping to a low of 0.7180 against the US Dollar Thursday. The Reserve Bank currently holds the highest interest rate in the G10 but may well lose this status soon as the Fed slowly catches up, offering a minimum of 3 rate hikes this year it will overtake the RBNZ – this would create interesting times for the New Zealand Dollar as it won’t be offering the highest yield. Remember the RBNZ seem in no rush to hike rates largely based on inflation targets. A quiet week ahead locally with only GDT Price Index of note Wednesday.
United States (USD)
The US Dollar remained strong against its main rivals as Powell gave his first speech in front of a Senate Banking Committee. He talked up the US economy and suggested a faster cycle of rate hikes- information markets have potentially already factored in. What started out as good news with Powell supporting the USD, quickly turned around as Trump put things back to reality quick smart announcing import tariffs on steel and aluminium. Not only will this have an impact on the world biggest steel exporters such Canada, Brazil, South Korea and Australia but the news has also spooked investors as the tariffs will increase the general price of goods possibly forcing the Federal Reserve to veer away from raising interest rates at the current projected pace. The Dollar Index has declined further on the news closing lower to 90.31 but remains up 2% for the year.
United Kingdom (GBP)
The Great British Pound has come under pressure as Brexit developments freak markets. The Pound acted sensitively falling against the US Dollar to a 6 week low of 1.3750 on the prospect of the EU and UK failing to reach a deal in March. The EU’s has proposed a draft containing detail as to how it wanted the exit to occur, I suspect Theresa May in her speech Friday will highlight her own agenda on how things should operate. One of the main causes on concern in the initial EU report is the land border between Northern Ireland and the UK suggesting Northern Ireland should remain in the EU. Of note on the data front is Manufacturing PMI and Construction PMI to end the week.
The EURO (EUR) continues to be sold off, trading down to a low Thursday of 1.2150. Powell offered an upbeat view of the US Economy Friday but his comments were soon forgotten when President Trump spoke soon after announcing heavy tariffs on importing of steel and aluminum. The market reacted negatively on the news pushing EUR/USD back higher to 1.2260. This should be enough to spark a EUR fight back to early February 2018 levels of 1.2550. With inflation still running below target in the EU we may see a further decline in EUR once the US Fed start hiking rates. German Retail Sales print tonight along with Spanish Unemployment. Next week sees the Italian Election.
The Japanese Yen (JPY) continued its bullish mood against the US Dollar (USD) trading to 105.70 Wednesday. Retail Sales printed worse than expected at 1.6% from 2.3% expected, and Core CPI was above the expected 0.6% growth figure coming in at 0.8%. This news boosted the USD briefly but it lost support through the NY session as markets bought JPY Thursday. The Bank of Japan (BOJ) has made the decision to reduce the buying of long dated Japanese Government Bonds this week, this may push buyers back into the Japanese Yen (JPY). It has a little way to go before its takes a look at the long-term range support of 99.00. Manufacturing figures, Core CPI and the unemployment rate all release at the end of the week. Look for markets to stay with the safety of the JPY heading into the weekend.
The Canadian Dollar (CAD) lost further ground this week across the board. Sitting at 1.2830 vs the USD Thursday it looks to be making gains on the previous high of 1.2900 set in December last year. Oil has slumped back to $61.45 per barrel over 2% after the EIA inventories report showed a surprise rise in oil inventories contrary to earlier reports. Canadian deficit forecasts have not changed from the October forecast as the Canadian Finance Minister still projecting 2% growth through to 2022. The Canadian Dollar (CAD) remains largely under pressure based on fiscal issues and NAFTA nerves, also (BOC) Bank of Canada seem to be the most hawkish of the G10 players which doesn’t sit right given the current economic situation. Canadian monthly GDP prints later in the week.