Australian Dollar
As the week drew to a close the Australian Dollar slipped against several of its main peers, falling back to the 0.70 level against the US Dollar.
The week’s disappointing Australian labour market and Chinese inflation figures continued to weigh on AUD demand and the South Pacific currency came under additional pressure as oil prices dipped and global stocks pared their weekly gains.
The AUD/USD currency pair then consolidated losses during the North American session as US annual inflation accelerated at a faster pace than forecast. US CPI jumped to 1.4% on the year in January, up from a previous reading of 0.7%. Although minutes from the last Federal Open Market Committee gathering showed that policymakers are adopting a dovish attitude towards future interest rate adjustments, if domestic data continues to impress projections for the next hike might be brought forward – a development which would have a negative impact on demand for higher-risk assets like the ‘Aussie’.
This week the focus will largely be on US news, but there are a couple of Australian reports with the potential to inspire AUD fluctuations. Of those set for release, the most influential include the Wage Cost Index, Westpac-MNI Consumer Sentiment Index and Private Capital Expenditure numbers. General market sentiment will also play a major role in currency shifts, with stock and commodity price fluctuations liable to impact the ‘Aussie’.
Sterling
After being buoyed by comments issued by the Bank of England’s (BoE) Deputy Governor, in which he indicated that interest rate hike expectations had been pushed back too far, the Pound’s brief uptrend was stymied by a lack of progress in the UK’s EU membership renegotiations.
The AUD/GBP exchange rate did drop by 0.5% before European markets closed for the weekend, but this was more to do with ‘Aussie’ weakness than Sterling strength. The UK’s retail sales numbers failed to give the Pound a boost despite revealing an unexpected 5.2% annual surge in consumer spending.
Over the week ahead UK growth and confidence figures may have an influence on Sterling trading, but investors are more likely to remain preoccupied with the UK’s EU membership discussions.
Euro
Rising demand for safe-haven assets gave the Euro a boost at the close of last week, resulting in an AUD/EUR decline of 1%.
Although confidence improved somewhat in the wake of the upbeat US inflation print, the boost this data gave to 2016 US interest rate hike expectations allowed the Euro to retain the upper hand against the ‘Aussie’ in spite of expectations that the European Central Bank (ECB) intends to expand stimulus measures at its next policy gathering.
The Eurozone is set to publish manufacturing/services PMIs this week, but given the ECB’s preoccupation with inflation, that report is liable to prompt the most Euro movement. An uptick in inflation would push the common currency higher but signs of slowing consumer price growth would see the AUD/EUR pairing recoup some of its recent losses.
US Dollar
Hopes for another US interest rate hike taking place before the third quarter of 2016 were bolstered on Friday as the increase in US inflation far exceeded forecasts.
With the pace of consumer price growth doubling in January the Fed’s decision to raise borrowing costs in December appeared vindicated and the US Dollar accordingly strengthened across the board.
The ‘Greenback’ was able to drive the Australian Dollar back below 0.71 and if this week’s key US reports (namely the nation’s ISM US Manufacturing PMI, Consumer Confidence index, Durable Goods Orders and fourth quarter GDP figures) leave investors feeling less dovish regarding US interest rates the AUD/USD exchange rate could extend losses.
Canadian Dollar
Sliding oil prices and faltering market sentiment weighed on the ‘Loonie’ at the close of last week. Although the rate of domestic inflation exceeded forecasts, a dramatic drop in local retail sales counteracted the positive impact of this development.
While the AUD/CAD exchange rate remained slightly lower, the Canadian Dollar lost ground against the US Dollar, Pound and Euro. Canadian data is in short supply in the days ahead so CAD movement will be dictated by shifts in sentiment and commodity prices.
New Zealand Dollar
Like the Australian Dollar, the New Zealand Dollar dropped against most of its currency counterparts as European markets prepared to close for the weekend and appetite for higher risk assets died.
If this week’s trade figures for New Zealand prove disappointing, the ‘Kiwi’s recent downtrend could continue.
Data Released
Feb 22nd 13:30 NZD Credit Card Spending (YoY)
Feb 22nd 19:30 EUR Markit Services PMI (Feb)
Feb 22nd 19:30 EUR Markit Manufacturing PMI (Feb)
Feb 23rd 01:45 USD Markit Manufacturing PMI
Feb 23rd 18:00 EUR German GDP (4Q F)