Australian Dollar
Federal Reserve Chairwoman Janet Yellen surprised investors yesterday with dovish comments on the global economy. Yellen warned that a cautious and gradual approach was necessary for US interest rates, surprising the markets, as traders were widely anticipating the Fed leader to hint that the first rate hike of 2016 could be in the short term.
The Australian Dollar was boosted by the fallout from Yellen’s public appearance, with AUD/USD peaking at 0.7686. However, sentiment towards the ‘Aussie’ was undermined to some extent by comments from Jeremy Lawson, a former economist for the Reserve Bank of Australia (RBA) and the Organisation for Economic Co-operation and Development (OECD).
Lawson, now Chief Economist for one of the world’s largest asset managers, cited a lack of structural reform in major economies, particularly Australia, as a major deterrent for investors.
Sterling
Pound Sterling was weakened by two major factors yesterday. The first was the announcement that the board of Indian multi-national company Tata Steel had decided to sell off its UK business interests. This includes the Port Talbot plant, which currently employs 4,000 of the company’s 15,000 UK workers.
The second dragging factor keeping Pound Sterling in negative territory overall today is an analysis of ‘Brexit’ opinion polls by one of the only commentators to successfully predict the outcome of the last UK general elections. According to political blogger Matt Singh, telephone polls are more likely to accurately reveal voter sentiment, which will be a relief for ‘Remain’ campaigners, who come out on top in the surveys.
A slew of UK data due this morning includes Net Consumer Credit, Mortgage Approvals and the final year-on-year (YoY) Gross Domestic Product estimate for the final quarter of 2015.
Euro
A strong result from the German Consumer Price Index wasn’t enough to shore up a lacklustre Euro yesterday. The common currency made small gains against several of the majors, but remained soft overall. Preliminary inflation figures for March showed a month-on-month acceleration in growth from 0.4% to 0.8%, while year-on-year CPI rose from 0% to 0.3%, outpacing forecasts by twenty basis points.
The positive effect of the data was partly overshadowed by earlier releases showing that economic confidence in the Eurozone continued to decline. The European Commission’s economic sentiment indicator dropped for the third month in a row, slipping a larger-than-expected -0.9 points. The current reading of 103 shows that confidence is at its lowest for 13 months. Falling confidence among consumers was cited as a particularly driver for the decline, which could undermine the positive inflation data.
US Dollar
With multiple senior Fed officials having recently offered hawkish assessments of the US economy and future interest rates, investors had high hopes for a speech from Fed Chairwoman Janet Yellen. However, instead of the anticipated hints regarding rate hikes, Yellen stated that the Federal Open Market Committee (FOMC) should ‘proceed cautiously in adjusting policy’.
The news weakened the US Dollar as traders slashed their expectations for US interest rates over the coming year. At the beginning of January many were anticipating a total hike of 1% over the course of the year, but now the widespread market view is that the Fed will increase rates by just 0.25% in 2016.
Initial Jobless Claims and Continuing Claims figures are due out at the end of the day.
Canadian Dollar
Janet Yellen’s comments saw traders turn away from the safe-haven US Dollar and towards more risky assets. This saw gold and mining stocks rise, as well as oil prices. Increased ‘black gold’ appetite pushed Brent Crude back towards the US$40 per barrel mark, taking the Canadian Dollar up with it. Gains were relatively modest, perhaps contained by the approaching OPEC meeting in mid-April, which will have a more long-term impact upon oil prices compared to the current risk-on sentiment.
New Zealand Dollar
A floundering US Dollar paved the way for the New Zealand Dollar to advance, with the Kiwi making bullish gains across the board. There was no domestic data to support the demand, although confidence was firmed further by comments from Treasury Secretary Gabriel Makhlouf on the soundness of the current policy framework. After conducting a review into the framework between the Reserve Bank of New Zealand (RBNZ) and the New Zealand Finance Minister, Makhlouf claimed that the current system is sound and does not need to be altered, despite persistently low inflation.
Data Released
March 31st 11.00 AUD HIA New Home Sales (MoM) (FEB
March 31st 11.30 AUD Private Sector Credit (YoY) (FEB) 6.5%
March 31st 18.55 EUR German Unemployment Change (MAR) -6k
March 31st 18.55 EUR German Unemployment Rate s.a. (MAR) 6.2%
March 31st 19.30 GBP Gross Domestic Product (YoY) (4Q F) 1.9%
March 31st 20.00 EUR Eurozone Consumer Price Index Estimate (YoY) (MAR) -0.1%
March 31st 20.00 EUR Eurozone Consumer Price Index – Core (YoY) (MAR A) 0.9%
March 31st 23.30 CAD Gross Domestic Product (YoY) (JAN) 1.1%
March 31st 23.30 USD Initial Jobless Claims (MAR 26) 265k
March 31st 23.30 USD Continuing Claims (MAR 19) 2194k