Australian Dollar
After the AUD/USD exchange rate reached an 8-month high last week, concerns that the Australian asset is vastly overvalued saw the Oceanic currency retreat. However, the initial stages of this week’s trade has seen the ‘Aussie’ (AUD) recover losses despite the fact that the US Dollar has also staged a strong comeback.
‘Aussie’ appreciation can be linked to China’s equity gains after the Shanghai Composite Index closed the Asian session nearly 2.2% higher. Continued intervention from the People’s Bank of China (PBoC) has seen risk sentiment improve significantly with heightened demand for high-yielding assets.
However, Australian Dollar overvaluation remains a considerable concern for policymakers and investors alike. With speculation mounting that the Federal Reserve’s dovish outlook last week was merely an attempt to devalue the Dollar, however, the potential for more Federal Reserve rate hikes than has been priced-in by markets could see a dramatic ‘Aussie’ depreciation in the long-term.
Tuesday’s Australasian session should see AUD volatility in response to Australia’s fourth-quarter House Price Index and a speech from Reserve Bank of Australia (RBA) Governor Glenn Stevens. Market sentiment will also play a hand in ‘Aussie’ movement throughout the week.
Sterling
Over the weekend the British Pound retreated from highs initiated by a more hawkish-than-anticipated Bank of England (BoE) policymaker outlook. The depreciation was investors’ response to political turmoil which saw ex Leader of the Conservative Party, Ian Duncan Smith, resign. Smith resigned in protest of the latest budget statement from Chancellor George Osborne which introduced cuts to disability benefits. This spooked investors because Ian Duncan Smith is a prominent member of the ‘UK Out’ campaign. He is likely to gain popularity for his stance against welfare cuts which could transpire into votes for a ‘Brexit’.
Also weighing on demand for the UK Pound was a report from the Confederation of British Industry (CBI). The EU funded organisation warned of 950,000 lost jobs by 2020 if Britain votes to leave the EU. CBI officials also noted that the UK economy will be much smaller by 2030 compared with potential growth if the UK remains a member of the European Union.
The most significant UK data publication this week will be Tuesday’s Consumer Price Index for February. Any sign that inflation has picked up will support BoE policymakers’ assurances that the next move from the central bank will be a rate hike and not a rate cut.
Euro
Amid speculation last week that the European Central Bank (ECB) could still ease policy further, the Euro softened versus most of its major peers. In the early stages of this week’s trade, however, the Euro recovered versus some of its major peers despite divergent speeches from ECB officials.
ECB Executive Board member Benoît Coeuré argued that the ECB’s extensive stimulus measures will not be enough on its own to spur Eurozone growth. He also concluded that the central bank could ease policy still further if necessary.
However, ECB governing council member Francois Villeroy de Galhau had a very different outlook. Villeroy stated that the most recent stimulus measures will have a positive impact on inflationary and economic growth in the Eurozone. He also stated that the central bank will not consider any further unconventional tools to stimulate a recovery at this time.
Although there will be several influential domestic data publications this week with potential to cause Euro volatility, trader focus will likely be dominated by US Dollar movement. With that in mind, Thursday’s US Durable Goods Orders will be very likely to cause Euro changes.
US Dollar
Last week the US Dollar softened considerably after the Federal Reserve announced a reduction in rate hike forecasts to just two in 2016. However, the downtrend was short-lived amid speculation that policymakers were just attempting to devalue the USD.
Since 2014 the US Dollar has been considered overvalued after stimulus measures from the ECB and Bank of Japan (BOJ) caused demand for the Dollar to surge. Now many analysts predict that the Fed will hike rates irrespective of trade weighting because domestic data results will force policymakers into tightening.
This week Thursday’s Durable Goods Orders for February will be most closely watched by USD traders. Market sentiment is also likely to cause USD changes this week.
Canadian Dollar
The Canadian Dollar saw positive gains last week in response to the dovish Federal Open Market Committee (FOMC). Fears of wider policy outlook divergence between the neighbouring nations were consequently reduced.
Oil prices continue to drive ‘Loonie’ (CAD) volatility, however. Crude saw some marked price swings last week as global oversupply concerns were offset by hopes that oil producing nations will be able to work together to reduce global output.
On Monday the Canadian Dollar weakened versus most of its peers as oil prices retreated. With a complete absence of Canadian ecostats this week, the ‘Loonie’ will continue to see changes in response to oil prices and market sentiment.
New Zealand Dollar
Much like its Oceanic neighbour, the New Zealand Dollar rose last week in response to reduced Fed rate hike bets. Even weaker dairy prices and lacklustre domestic data results weren’t enough to offset ‘Kiwi’ (NZD) gains.
The New Zealand Dollar dropped in value against the Australian Dollar on Monday of this week, however. The depreciation can be linked to an unexpected contraction in February’s monthly Credit Card Spending.
The ‘Kiwi’ (NZD) avoided larger losses, however, thanks to improved market sentiment following the close to 2.2% gain in China’s Shanghai Composite Index.
With significant domestic data lacking this week, ‘Kiwi’ movement will be subject to volatility in response to market sentiment. With that said, Wednesday’s trade data has potential to cause changes.
Data Released
March 22nd 01:00 USD Existing Home Sales (MoM) (FEB)
March 22nd 11:30 AUD House Price Index (YoY) (4Q)
March 22nd 20:00 EUR German IFO – Current Assessment (MAR)
March 22nd 20:30 GBP Consumer Price Index (YoY) (FEB)
March 22nd 21:00 EUR Eurozone ZEW Survey (Economic Sentiment) (MAR)
March 23rd 15:00 EUR Eurozone Consumer Confidence (MAR)
March 24th 12:30 USD Durable Goods Orders (FEB P)