Australian Dollar
Despite a weaker US Dollar, risk appetite was not prevalent on Friday, with the Australian Dollar weakening on fresh market fears of incoming policy easing. Markets have recently grown more confident that the Reserve Bank of Australia (RBA) has abandoned its easing bias. However, the latest Bloomberg poll of economists at leading financial institutions suggested that hopes the next policy move would be to raise interest rates are overdone. Analysts from firms including JP Morgan were particularly dovish, expecting rates to fall to 1% before the RBA is finished. This, coupled with weakening year-on-year producer prices in the third quarter, kept market sentiment towards the ‘Aussie’ cold.
The Reserve Bank of Australia (RBA) announces its next monetary policy decision tomorrow.
Sterling
AUD/GBP slid into negative territory on Fridayeven as the Pound worsened virtually across the board. A former Bank of England (BoE) policymaker warned that Brexit would be a source of ‘chronic pain’ for the UK, while the Northern Ireland high court overturned a legal challenge against the triggering of Article 50. Those issuing the challenge had claimed that it was a breach of NI law to invoke the exit clause without a parliamentary vote. That the challenge was thrown out of court in Northern Ireland bodes ill for a similar challenge currently underway in the UK, lessening market hopes of a last minute block to Brexit.
The results of the Bank of England’s latest policy meeting are due this week; this time round will be another ‘Super Thursday’, with the decision also accompanied by the publication of the latest Inflation Report.
Euro
Friday was a game of two halves for the Euro, with the common currency initially weakening ahead of the day’s key data. Downside pressures were piled onto the single unit after the European Central Bank’s (ECB) Benoit Coeure suggested stimulus was set to remain at its current, or looser, levels. Coeure acknowledged that easy policy could damage the economy, but the effects of tightening policy would be worse and could cement the Eurozone’s current cycle of low inflation. Later, strong confidence figures and a small as-forecast rise in German inflation cheered the markets again. CPI growth increased by ten basis points on the month and the year in October, reaching 0.2% and 0.8% respectively, boosting demand for the Euro.
The latest Eurozone consumer price figures are due for release today. If inflation in the currency bloc as a whole has improved, as last week’s German data did, the Euro is likely to receive a strong boost.
US Dollar
The US Dollar was left in an uncertain position on Friday after the latest tier-one data painted a mixed picture of the economy. Third quarter GDP rocketed from 1.4% to 2.9% – a result 0.3% above forecast. However personal consumption more than halved, dropping to 2.1% from 4.3%. Personal consumption is a key measure of inflation, preferred by the Federal Reserve to the consumer price index, with the marked slowdown pointing to a weakening in consumer activity. Considering bets of December tightening were nearly at 80% before the release of the data, expectations of a rate hike are likely to remain high, although the consumption figure will surely have taken the edge off market hopes.
The Federal Open Market Committee (FOMC) will announce its latest policy decisions on Thursday. Markets are expecting no changes, although they are hoping for strong indications that December is a ‘live’ meeting.
Canadian Dollar
Oil was weakening on Friday due to the approach of a weekend meeting by the Organisation of the Petroleum Exporting Countries (OPEC). Although OPEC was not expected to make a formal announcement regarding any agreement to freeze or reduce production until November, markets were nonetheless hoping for strong indications that a deal would indeed go ahead. Fears that the various members of OPEC would be unable to reach an accord kept the crude oil markets soft, undermining the Canadian Dollar.
Canadian gross domestic production figures for August are due for release tomorrow.
New Zealand Dollar
With the Australian Dollar weakened by stimulus fears and the Canadian Dollar tracking the oil market lower, the New Zealand Dollar was the risk-correlated asset of choice on Friday. The ‘Kiwi’ had initially remained soft after it was revealed that the contribution of dairy pay-outs to the economy had nearly halved since diary prices peaked in the 2013-14 season. Pay-outs from dairy cooperative Fonterra have weakened to NZ$8 billion after hitting highs of NZ$15 billion. However, lacklustre US data kept appetite for yield warm, enabling the New Zealand Dollar to advance.
New Zealand’s unemployment data is set for release on Wednesday.
Data Released
October 31st 21.00 EUR Eurozone Consumer Price Index Estimate (YoY) (OCT)
November 1st 14.30 AUD Reserve Bank of Australia Rate Decision (NOV 1) 1.5%
November 1st 23.30 CAD Gross Domestic Product (YoY) (AUG)
November 2nd 08.45 NZD Unemployment Rate (3Q)
November 3rd 05.00 USD Federal Open Market Committee Rate Decision (NOV 2) 0.50%
November 3rd 23.00 GBP Bank of England Rate Decision (NOV 3)