Australian Dollar
Last week the Australian Dollar experienced a rocky few days of trading and approached the weekend on a downtrend, registering losses of more than -1% against the US Dollar, Pound and Euro during the local session.
However, despite bottoming commodity prices and the worst Chinese growth data for 25 years, the Aussie staged something of a rebound on Tuesday.
Expectations that the slowing rate of growth in the world’s second largest economy will prompt the introduction of additional stimulus lent AUD support. The fairly muted stock market reaction to the news that China registered annual expansion of just 6.8% in the fourth quarter also bolstered risk appetite. Australia’s upcoming Consumer Confidence report could be the next cause of Australian Dollar movement.
Sterling
After a run of below-forecast domestic ecostats, there was finally some positive news for the UK this week in the form of better-than-forecast inflation data. Both core and non-core inflation rose modestly, with the data prompting a brief increase in demand for the Pound.
As the European session continued, Sterling reversed gains against the Euro and US Dollar and extended previous losses against the Australian Dollar thanks to dovish interest rate related commentary from BoE Governor Mark Carney.
With Carney highlighting all the headwinds preventing a UK interest rate increase and indicating that an adjustment isn’t likely to occur for a long time to come, the ‘Aussie’ was able to jump almost 1% against the Pound. Further AUD/GBP gains could be on the horizon if the UK’s latest employment numbers reveal a slowing in wage growth in November.
Euro
While data confirmed a previously estimated 0.2% pace of consumer price growth in the Eurozone, the Euro failed to derive much benefit.
Concerns relating to the deflationary climate in the currency bloc (a situation not likely to be improved by the current commodities crisis) kept the Euro under pressure and the AUD/EUR pairing consolidated gains as the ZEW Economic Sentiment index for the Eurozone slumped from 33.9 to 22.7.
We may see the Euro edge lower against the ‘Aussie’ ahead of this week’s ECB interest rate decision. If the central bank indicates that the size of its current quantitative easing programme might increase to help counter the impact of global headwinds, the common currency could slide.
US Dollar
The AUD/USD exchange rate remained below the 70 cents level as the week progressed but rebounded from a low of 0.6836 despite slowing growth in China and the International Monetary Fund (IMF) cutting its forecasts for global growth.
However, we could see a reversal in the pairing if the latest US inflation figures show the uptick in consumer price pressures anticipated by economists. Rising inflation could give the Federal Reserve the drive to raise borrowing costs in the near future.
Some analysts are betting the AUD/USD pairing could hit lows of 0.64 before the close of this year, a level last recorded in 2008, and regular rate hikes over the next few months could hasten this descent.
Canadian Dollar
Earlier this month oil prices fell below the 30 US Dollars per barrel mark. As crude oil is Canada’s main export, the shift has kept the Canadian Dollar under pressure, with the ‘Loonie’ struggling to hold ground against the majority of its currency rivals.
The downtrend in oil prices may also have the effect of pushing the Bank of Canada (BOC) into cutting interest rates at its upcoming meeting. If a negative revision to borrowing costs does materialize we may see the AUD/CAD exchange rate climb.
New Zealand Dollar
A -1.4% decline in dairy prices helped the Australian Dollar maintain the upper hand in the AUD/NZD pairing ahead of the publication of New Zealand’s Consumer Price Data for the fourth quarter.
Should the pace of inflation slow from 0.4% to 0.3% on the year, as predicted, the New Zealand Dollar could edge lower over the course of the local session.
Data Released
Weds 20th 10:30 AUD Westpac Consumer Confidence (Jan)
Weds 20th 20:30 GBP ILO Unemployment Rate (3M) (Nov)
Weds 20th 08:45 NZD CPI (4Q) (YoY)
Thurs 21st 00:30 USD CPI (Dec) (YoY) 0.8%
Thurs 21st 00:30 EUR ECB Interest Rate Decision 0.05%