Australian Dollar
Ahead of the Federal Open Market Committee’s (FOMC) first interest rate decision of 2016, the Australian Dollar was able to gain on a number of its rivals in response to domestic inflation data.
The news that Australia’s CPI printed at 0.4% on the quarter and 1.7% on the year (beating forecasts for Q4 readings of 0.3% and 1.6%) reduced the odds of imminent monetary easing from the Reserve Bank of Australia (RBA) and helped AUD firm against USD, GBP and EUR.
Further Australian Dollar gains occurred after the Federal Reserve left US interest rates on hold and failed to commit itself to a March adjustment. As well as briefly climbing above the 0.71 level against the US Dollar, the ‘Aussie’ was able to strike a 7-month high against the Pound.
Next week the Australian Dollar could continue its uptrend if domestic manufacturing data impresses and the RBA adopts a hawkish tone following its upcoming policy gathering.
Sterling
After gaining on the commodity-correlated Australian Dollar in a largely risk-off trading environment, the Pound retreated all the way to a seven-month low against its Antipodean peer following the FOMC announcement.
Demand for Sterling also remained fairly muted as the UK’s 4Q GDP data confirmed a forecast decrease in the rate of annual expansion from 2.1% to 1.9%. While the Pound was able to hold its own against rivals like the US Dollar and Euro as the QoQ figure beat expectations by printing at 0.5%, its performance against the ‘Aussie’ was less impressive. The AUD/GBP exchange rate was able to achieve a high of 0.4962. UK news to be aware of next week includes the Markit Manufacturing/Services/Composite PMIs and the trio of announcements from the Bank of England. While the central bank is unlikely to make any alterations to fiscal policy, the meeting minutes and inflation report could prove influential.
Euro
The AUD/EUR exchange rate rallied on Thursday as measures of confidence in various sectors of the Eurozone (including industrial, business and services) registered declines. Germany’s latest inflation data did show an unexpected uptick in annual consumer price pressures, but the result had little positive impact on demand for the common currency given that German inflation dropped by -0.8% on the month.
Before the weekend German retail sales figures and inflation data for the Eurozone as a whole could prompt additional AUD/EUR volatility.
US Dollar
Stock market volatility, plummeting commodity prices and the threat of tighter fiscal policy in the US have all contributed to the AUD/USD downtrend seen since the start of the year. However, this week the pairing was able to climb from a low of 0.69 to a high of 0.71. Although the ‘Aussie’s time above the 0.71 level proved brief, the Australian Dollar approached the close of the week in a stronger position against the US Dollar thanks to the FOMC’s non-committal policy statement.
While the Fed didn’t take the dovish stance many investors had expected to see given the current global economic climate, the fact that the central bank didn’t exactly prime markets to expect another rate hike in March sent the US Dollar lower and, subsequently, riskier currencies like the Australian Dollar higher.
With US trade balance and GDP data due out today we can expect further AUD/USD movement before the weekend.
Canadian Dollar
Although oil prices surged beyond US$35 per barrel on hopes of their being a cut in production, the Canadian Dollar experienced a pretty dismal local trading session on Thursday.
CAD dropped by more than 0.5% against GBP, NZD and AUD but managed to register a modest gain against a struggling US Dollar.
Canada’s upcoming Q4 growth data is expected to show a return to expansion in November however so the ‘Loonie’ could still recoup losses before the week is through.
New Zealand Dollar
While the Reserve Bank of New Zealand (RBNZ) refrained from delivering an interest rate cut at its latest policy gathering, the inference that borrowing costs could be altered in the near future saw the AUD/NZD exchange rate achieve a 6-week high.
The New Zealand Dollar could be in line for notable movement next week with domestic employment data due for release and the latest dairy auction set to take place.
Data Released
Fri 29th 10:00 EUR CPI (YoY) (JAN) 0.4%
Fri 29th 13:30 USD GDP (Annualised) (Q4) 0.8%
Fri 29th 13:30 CAD GDP (YoY) (Nov) 0.2%
Feb 2nd 03:30 AUD RBA Rate Decision
Feb 2nd 21:45 NZD Unemployment Rate
Feb 2nd 21:45 NZD Employment Change