Australian Dollar
The Australian Dollar was bullish on Friday after Chinese data eased fears that the world’s second-largest economy was heading for a hard landing. The ‘Aussie’ racked up strong gains against its major peers, advancing more than 1% in many instances, after Chinese consumer prices were shown to have grown 1.9% in September. This was up from 1.3% in August and above the forecast of 1.6% growth. Producer prices also saw a rise; the first in 54 months, helping to improve the outlook of the Chinese industry and therefore boding well for the Australian companies supplying the raw materials. The Reserve Bank of Australia’s (RBA) Financial Stability Review raised some concerns over the vulnerability of Australia’s banks to the commercial property sector, but this was not enough to detract from ‘Aussie’ appetite.
Australian employment change and unemployment rate figures for September are set for release on Thursday.
Sterling
AUD/GBP racked up bullish gains versus Pound Sterling, as investors were further dissuaded from buying into the UK currency after comments regarding a ‘Hard Brexit’ from a top EU official. European Council President Donald Tusk stated that, unless the UK overthrew the Brexit vote, the only choice open to the country was a ‘Hard Brexit’. He reaffirmed that the four freedoms of movement in the single market – people, goods, capital and services – could not be split, providing even more evidence that the UK government would not be able to secure a trade deal with the EU that included access to the single market without accepting uncurbed immigration in return. The Pound was also softened by disappointing construction statistics after output fell -1.5% in August instead of growing 0.2%, in line with economists’ forecasts.
The Pound appears to have hit rock bottom recently, so the markets may finally start paying attention to UK data again this week. Tuesday’s consumer price index figures for September could receive particular market scrutiny this week, especially given last week’s row between Unilever and Tesco over costs.
Euro
The Euro was weakened both from within and by external sources on Friday. Strong risk appetite sparked by the latest Chinese data, coupled with a focus on the US ahead of the day’s key developments, saw investors reluctant to buy the Euro. The markets were also riled by comments from Greek Prime Minister Alexis Tsipras, who demanded debt relief for his country. Eurogroup creditors are currently funding the latest bailout without capital from the International Monetary Fund (IMF) due to disagreements between the two over the issue. The IMF will not contribute to the bailout until it believes Greece’s debt levels are stable; something it argues won’t happen until creditors agree to help lift the burden. However, doing so could be politically damaging in Germany, causing Finance Minister Wolfgang Schauble to dig his heels in over the matter. The re-emergence of such a thorny issue kept Euro appetite cool.
The next European Central Bank (ECB) monetary policy meeting takes place on Thursday. No changes are forecast for interest rates, but markets will be interested to see the Governing Council’s position on quantitative easing. There have been rumours the ECB plans to taper the rate of asset purchases from its current €80 billion per month, so a shift here could cause upside risks for the Euro.
US Dollar
Strong bets of an interest rate hike kept the US Dollar firm and advancing, although the ‘Greenback’ receded against the commodity currencies thanks to the latest Chinese dataset. Strong inflationary data from the Asian superpower lessened fears of a global hard landing; a fear that the Federal Reserve has cited before. This improved the odds of tighter monetary policy in December, as did the advance retail sales figures for September coming in on forecast at 0.6%. The previous decline was revised lower to -0.2%.
US consumer price data on Tuesday could give more fuel to bets of tighter monetary policy in December if inflation is shown to have strengthened.
Canadian Dollar
There was no Canadian economic data released on Friday, but the Canadian Dollar was largely on strong form. The crude oil markets were holding firm despite a strong rise in US crude oil stocks, which climbed by nearly 5 million barrels after six weeks of declining. However, stockpiles of gasoline, diesel and heating oil saw a significant drop, counteracting the negative impact upon demand from the swollen crude reserves.
The Bank of Canada makes its next interest rate decision on Thursday. Considering the latest Reuters poll shows economists do not expect a hike until the first quarter of 2018, it is hardly surprising that the current forecasts are for a rate hold at 0.50%. The accompanying Monetary Policy Report could alter those projections, however, if it seems more upbeat on the state of the Canadian economy.
New Zealand Dollar
The New Zealand Dollar was largely strong on Friday, although it weakened against its commodity peers as, despite deriving support from the same Chinese inflation data as the ‘Aussie’, the overvalued New Zealand Dollar has less room for appreciation than its antipodean cousin.
Tuesday will be a busy day for New Zealand Dollar movement thanks to the presence of both the third-quarter consumer price figures and global dairy trade auction on the calendar.
Data Released
October 18th 08.45 NZD Consumer Prices Index (YoY) (3Q)
October 18th 19.30 GBP Consumer Price Index (YoY) (SEP) 0.8%
October 18th 23.30 USD Consumer Price Index (YoY) (SEP) 1.5%
October 20th 01.00 CAD Bank of Canada Rate Decision (OCT 19) 0.50%
October 20th 11.30 AUD Employment Change (SEP) 15k
October 20th 22.45 EUR ECB Asset Purchase Target (OCT)