Australian Dollar
The Australian Dollar was weak yesterday as poor Chinese trade data weighed on market sentiment, despite an improved consumer inflation expectation. A -1.9% decline in China’s imports surprised forecasts of 0.7% growth, while a -5.6% collapse in exports against predictions of 2.5% growth dragged the trade surplus down significantly. Forecast to edge higher from US$52.05 billion to US$53 billion, the trade surplus instead fell to US$42 billion, or from 346 billion to 278 billion in Yuan terms. Australia’s consumer inflation expectation rose from 3.3% to 3.7%, suggesting building tailwinds for consumer prices.
Today’s only Australian data is the Reserve Bank of Australia’s (RBA) Financial Stability Review; given that it is released during the same session as the Chinese consumer price index and US advance retail sales, it is likely the FSR will not dominate ‘Aussie’ movement.
Sterling
While the Pound was on soft form overall yesterday, AUD/GBP exchange rates slipped into negative territory thanks to concerns over a potential slowdown in China. The Pound has been struggling around current levels for several days now, suggesting that the currency may have hit a floor. There is nothing yet to provide support, with the day’s gains against the ‘Aussie’ more reliant upon the other’s weakness than any intrinsic momentum. Markets got their first glimpse of the predicted impact upon consumer prices from the weakened Pound yesterday as it emerged that Tesco was running out of products supplied by global giant Unilever – which owns brands including Marmite – due to the supplier’s intended 10% price hikes. While ‘Brexiters’ in government claimed the company was trying to ‘punish’ the UK for voting to leave the European Union, experts warned that this may be just the first of many clashes between suppliers and supermarkets as cost pressures mount.
The Pound is becoming increasingly decoupled from domestic data releases, so it is unlikely the day’s publications will impact AUD/GBP’s trajectory today. The Bank of England’s (BoE) Credit Conditions & Bank Liabilities surveys may cause further market jitters if the bank attributes any vulnerabilities it finds to the Brexit referendum.
Euro
The Euro was mixed, but strengthening overall yesterday. Finalised German consumer prices printed as expected, offering some positive inflationary news for the European Central Bank (ECB). The ECB’s Benoit Coeure commented that Eurogroup wanted to keep the International Monetary Fund (IMF) involved in the Greek bailout and that hard work was being done to ensure it happened. The IMF has not contributed funds to the latest Greek bailout, instead serving in a purely advisory role after disagreements over whether or not the Hellenic nation required debt relief in order to meet its repayments.
The Eurozone’s data may have little impact upon the Euro, as the predicted weakening in the trade balance is only forecast to materialise in the non-seasonally adjusted figures, meaning the bigger picture remains consistent.
US Dollar
Despite some positive domestic news, the US Dollar weakened yesterday on Federal Reserve speculation. The number of jobless claims remained at a 43-year low last week, providing further evidence of the strength of the labour market. While this would have been seen as an encouraging sign for the Federal Reserve, the markets were unimpressed by the minutes of the latest Federal Open Market Committee (FOMC) meeting. The minutes suggested that interest rates were almost hiked in September, but Fed Chair Janet Yellen ultimately persuaded policymakers to vote for a freeze. This does suggest the FOMC is in a more hawkish frame of mind than initially expected, but the fact that Yellen’s words were able to sway policymakers caused the markets to worry that the Fed Chair could essentially single-handedly keep interest rates on hold until she becomes more hawkish. As a result the US Dollar registered strong losses yesterday.
US advance retail sales are the next high-profile data release which could help improve Fed rate hike bets, especially considering 0.6% growth is predicted after August’s -0.3% decline.
Canadian Dollar
While new house price growth unexpectedly weakened in Canada in August, September’s house price index showed an accelerated pace of year-on-year gains. The Canadian Dollar also found support from the news that a German court had rejected a legal challenge to the Comprehensive Economic Trade Agreement (CETA) between Canada and the EU. If successful, the challenge could have doomed the agreement, which took five years of negotiations. Oil prices were holding steady, albeit edging lower, but the fact both WTI and Brent remained around strong recent levels further buoyed the ‘Loonie’.
There is no Canadian data on the calendar today.
New Zealand Dollar
The New Zealand Dollar was strong yesterday, helped by upbeat manufacturing and rising consumer confidence. The Business New Zealand performance of manufacturing index climbed even further from an upwardly-revised 55.2 to 57.7, while the ANZ confidence index for October showed a 1.6% gain, which took the index up to 122.9. Meanwhile Finance Minister Bill English revealed that higher tax receipts had swelled the government’s budget surplus to NZ$1.8 billion, nearly three times the level forecast in May and nearly five times the size of last year’s surplus, which was the first in seven years. For the first time since 2006 the government’s ‘Crown’ expenses were below 30% of GDP.
No New Zealand data will be published today.
Data Released
October 14th 11.30 AUD RBA Financial Stability Review
October 14th 12.30 CNY Consumer Price Index (YoY) (SEP) 1.6%
October 14th 19.30 GBP Bank of England Credit Conditions & Bank Liabilities Surveys
October 14th 20.00 EUR Eurozone Trade Balance s.a. (Euros) (AUG) 20.4b
October 14th 23.30 USD Advance Retail Sales (SEP) 0.6%