FX News

Major Economies – 10 November 2017


The Reserve Bank of Australia (RBA) kept rates on hold at 1.5% as expected on Tuesday with RBA Governor Lowe indicating that the central bank will not change its growth or inflation forecasts. The Bank’s central forecast remains for inflation to pick up gradually as the economy strengthens, with employment as well as wage growth expected to improve over the period ahead.  Economic data out this week for the Aussie economy remains mixed with retail sales and inflation softer than expected but the labour market continuing to perform well, showing a period of consistent growth over the last 12 months.

Today will see the release of the RBA November Monetary Policy statement, which should see the RBA remaining relatively positive around the ongoing growth prospects for the economy. However, given the continuing flat wages growth we expect the RBA to have a more cautious view around the short term inflation outlook. With no significant changes expected from the RBA market reaction is expected to be muted.

New Zealand

The RBNZ, as expected, left rates unchanged at 1.75% this week, but the statement was seen as less dovish than expected with the OCR forecast slightly higher than the previous August forecast. At the August MPS expectations were for the OCR to remain flat until September 2019, now it is only flat until June 2019, but the rate of increase over the 2019-2020 period remains slow. Also given that expectations were that the RBNZ would downgrade GDP growth, the RBNZ was more bullish, acknowledging that although inflation was now low, it expected stronger GDP growth to push inflation back to the 2% target.

Global dairy auction results out Wednesday showed another drop for the third time in a row, down an average 3.5% with Milk powder 5.5% lower. The effect on the NZD was minimal and with the NZD/USD rate around 4% since the last auction in mid-October this will help mitigate the impact on the returns to farmers. Earlier this week the acting RBNZ Governor Spencer and Finance Minister Robertson signed an unchanged Policy Targets Agreement and released the terms of reference for a review of the RBNZ Act.

These were much along the lines previously outlined, including the best way the Bank can give due consideration to maximising employment alongside the price stability framework and introducing a committee-based approach. This was seen as a positive development, reducing speculation around any major changes to the RBNZ Act, including no mention of adding any reference to the NZD into the target mix. Next week will bring retail sales data on Wednesday with PPI figures on Friday, we expect the NZD/USD to maintain around  current levels heading into next week with offshore moves driving direction.

United States

US equity markets have closed lower overnight in the worst slump for a couple of months, as details emerged that the tax plan would delay reducing tax cuts for corporates until 2019. US T-bonds rose and the USD extended its earlier losses. Volatility levels increased as investors are starting to grow impatient around the opportunities for serious fiscal reform with both the Senate and Congress struggling to agree on tax proposals that have any chance of becoming law. The deadline on passing a reformed tax plan by the Thanksgiving holiday, now only 2 weeks away, looks like extremely wishful thinking. Investors are becoming jumpy as the solid equity gains over this year have largely been attributed to the Trump/Republican agenda of healthcare reform, tax cuts and a rollback of corporate regulation.

The delay in tax reform is increasing uncertainty and could well result in consumers and companies reining in expenditure, portending further equity market drops. The trip by President Trump to Asia as yet has produced little market moving news, with plenty of rhetoric around North Korea but at this stage little response from North Korea that has caused tensions to increase. There are plans for three US carrier groups to run war-game exercises off the Korean coast later this month which may see another bout of risk-off market movement.

Overnight US data releases were also a little soft, with the weekly unemployment claims report showing that for the week ending November 4th,  initial claims were 239,000, an increase of 10,000 from the previous week’s unrevised level of 229,000.

United Kingdom

A dismal week for the UK pound (GBP) and the Government of PM May as another minister resigned for holding unauthorised talks with Israel. The GBP although remaining above the 1.30 level against the USD has drifted lower over the week as the political turmoil drags on. Brexit talks resumed yesterday with markets sceptical that any breakthroughs will be seen at the planned December summit. In fact, some reports suggest that the EU is preparing two draft versions of summit conclusions:  one for a breakthrough and one for continued stalemate.

A Bank of England report earlier in the week provided some positive news on potential wage growth (next week will bring employment data) but the service sector, which is approximately 80% of GDP, is still sub-par. A report on business investment showed that although plans for next year are solid, the subsequent two years are forecasted to be lower. The UK Budget is due on November 22nd and chances of a fiscal boost from this are unlikely, thus increasing the increasing vulnerability of the May Government. Tonight will see the release of several reports this Friday, including GDP estimates and manufacturing and industrial production for September, which could set the tone for next week alongside with progress in Brexit negotiations.


European equity markets tracked lower, having the largest fall since August as resource shares fell after a decline in industrial metals prices. Inflation concerns also increased as the European Commission’s Autumn forecast showed that the Eurozone economy is on track to grow at its fastest pace in a decade this year, with real GDP growth forecast at 2.2% up from previous 1.7%, while the EU economy as a whole is also set to beat forecasts with solid growth of 2.3% this year, revised from 1.9% in spring of this year. The EUR/USD is at 1.1650 but upward movement looks limited unless a break of 1.1720 occurs immediate support is at 1.1550 and we expect trading to hold around current levels going into next week.


Japanese data has been mixed over the last few days. Machinery orders figures for September were worse than expected, down by 8.1% against a -1.8% expected, leaving the YoY figure -3.5% against the previous advance of 4.4%. But Japan’s trade balance posted a larger-than-expected surplus in the same month of ¥852.2B. More clarity on the state of Japan’s economic  outlook will be evident next week, with GDP, Industrial production and Capacity utilization data all due. The USD/JPY is currently sitting at 113.35, immediate support is at 112.95, topside at 114.06 unlikely to be tested ahead of the weekend. Any uptick in Nth Korean tensions next week would see JPY back towards 112.00


Latest Canadian housing data has come in positive with building permits rising in September for the first time in three months, as strength in the non-residential sector outweighed some weakness in the residential sector. Housing starts for October came in better than expected at 222.8K against forecasts of 210k. The CAD has also enjoyed a spring back against the USD as the delay in the US corporate tax plan along with stronger oil prices,  saw the USD/CAD slide form a high of 1.2818 earlier in the week to 1.2666 overnight. Now at 1.2668 with next support level at 1.2620 a break of which could extend to 1.2525 over the next week or so.

Click here to view exchange rate charts.

Previous ArticleNext Article