The Aussie (AUD) made gains for much of the week against its main rivals, but in the past 12 hours much of that work has been undone. Fears by the RBA continue around wage growth remaining low with household debt levels high, and this is helping to limit AUD gains. The RBA are still optimistic the economy will progress and improve but it will be on their terms and be very gradual. With better than expected Chinese data out this week- both factory and investment in fixed assets were better than consensus, this gave the Australian Dollar (AUD) a slight boost before falling away sharply on broad risk aversion. Any ongoing trade uncertainty between China and the United States will undoubtedly have a detrimental effect on the Australian Economy and the AUD Dollar (AUD). A quiet week to come locally with only unemployment data to print on Thursday.
The New Zealand Dollar (NZD) remains largely range bound this week. Trading sideways against its main rivals the Australian Dollar (AUD), Pound (GBP), Euro (EUR) and the US Dollar (USD). Tuesday RBNZ Spencer about the role of “macro prudential policy and its effects on housing related risk with housing market pressures and uses the policy has with the current environment of low interest rates, the effect on the NZD was minimal. The country’s current account was also released Midweek and was lower than the expected -2.45B with -2.77B printing. The expectation on the New Zealand Dollar (NZD) was seen to be negative by market participants but strangely the kiwi carried on edging up through 0.7330 during local trading against the greenback. A risk averse market followed after President Trump’s announcement that he had sacked the Secretary of state Rex Tillerson with the NZD falling across the board. GDP published Thursday at 0.6% growth as opposed to 0.8% expectation, interestingly the hot summer weather was to blame for this having a negative effect on agriculture production which fell 2.7%, the news choking the New Zealand Dollar (NZD) lower. We expect the NZD to remain well bought over the next while.
The US Dollar edged lower posting its fourth session of depreciation against a basket of currencies as weak US inflation pushed investors to sell USD. Expectations of a faster pace of rate hikes and political uncertainty affected market sentiment. The US Dollar Index dropped 0.25% after trading at a session high of 90.10. President Trump kept us entertained with another gem- sacking his secretary of state Rex Tillerman initially via twitter, only to formally advise Tillerman of the news 3 hours later via phone call. The secretary of state will be replaced by the CIA director Mike Pompeo in what has been a continued “shake up” of Trump’s administration. Gina Haspel will be the new CIA director, the first woman to ever take the position. We have several moderately important US data releases to print before week end with Crude Oil inventories and Building Permits to perhaps offer the US Dollar (USD) its best potential of building Dollar (USD) momentum if they print well.
The British Pound has been very ranged bound over the second half of this week against the US Dollar trading in a tight band from 1.3920 – 1.3990 in subdued trading conditions. Philip Hammond tried talking up the UK economy overnight in his budget speech but market participants seem to agree that his numbers are far from realistic. He lacks enough resources to be able to bring UK into a brighter future- Brexit is far from convincing and Austerity now in its 10th year. He spoke about spending Billions on Hospitals and the military later in 2018 and hinted that Austerity pain would be eased later in the Spring Budget as public finances continues to improve- we will see. Next week will be busy on the UK calendar with CPI, Retail Sales and the Official Cash Rate to publish.
The EURO (EUR) came off its high of 1.2410 earlier in the week against the greenback (USD) to trade as low as 1.2300 Monday’s low during the Thursday NY Session. It continues to move in a wide range set around 1.2350 levels since late January. US Jobless claims published bang on expectation of 226k as the number of individuals filing for unemployment stabilised. Empire Manufacturing followed surpassing expectation dropping the EUR back to 1.2300 with US Dollar led strength. A move back to the top of the recent band of 1.2500 could be challenging in the near term. Next week is the Federal Funds Rate with markets expecting a hike of 0.25% the first of several to follow since the 0.25% rise in December last year.
The Japanese Yen (JPY) posted subtle gains against the US Dollar (USD) this week trading to a low of 105.70 on risk aversion, then inching back to 106.30 during local trading Friday. Core Machinery orders as a leading indicator of production printed well at 8.2% based on a 5.3% expectation giving the JPY additional strength. With the Japanese government spending much more than they are collecting in the form of tax revenue they must borrow exorbitant amounts of cash to stay afloat, its estimated these figures exceed $75,000 per capita now. Finance Minister Abe said during the week that he would miss next week’s G20 meeting adding concerns to political developments. The USD/JPY still remains in a bearish trajectory from the high of 114.00, the low of 6 November 2016 of 105.20 could be under threat next week if we continue to see a risk averse market continue.
The Canadian Dollar (CAD) continues to struggle, one of the worst performers over the last while it has again depreciated in value across the board. After Stephen Poloz suggested the bank of Canada could “step back” from raising rates in the near term based on a slower paced economy than previously thought, his comments sent the CAD south. The Canadian Prime Minister is confident a NAFTA agreement can be reached, it doesn’t have the same time pressures of Mexico and the US with Canada not a security risk to the US. Trudeau told steel workers that it makes no sense for the US to reverse its decision to exempt Canada from trade tariffs on steel and aluminum as this would hurt the Canadian economy. With another bout of risk aversion weighing on the Canadian Dollar (CAD) it has bounced off the high of 1.2975 just shy of large resistance of 1.3000 and looks wobbly heading into Friday’s monthly manufacturing sales.