Australian Dollar
Surging iron ore prices yesterday initially helped the Australian Dollar to post a bullish recovery from the bearish losses experienced in the wake of the US election result. Spot iron ore prices increased nearly 4% to US$70.98 per tonne; the highest level since the beginning of 2015. Australian data was mixed; home loans grew 1.6% in September, a mirror opposite of what had been expected, but investment lending was up 4.6%. The consumer inflation expectation edged lower from 3.7% to 3.2%, however.
The only domestic development on the economic calendar today is a speech from the Reserve Bank of Australia’s (RBA) Guy Debelle. Should he mention a changed outlook for the Australian economy as a result of Trump’s victory, markets may take notice, but otherwise his comments are likely to be largely ignored.
Sterling
The Australian Dollar to Pound Sterling exchange rate slumped yesterday, with GBP boosted by market speculation that Donald Trump would offer the UK favourable trade terms. Trump had already commented during his campaign that the UK would be at the front of the queue for a trade deal if he were President. This sentiment was supported by comments along the same line from his trade advisor.
Euro
Numerous factors supported the Euro higher yesterday, despite an initial desertion by investors chasing after high-yielding US bonds. According to unnamed sources within Goldman Sachs, the Eurozone may have scored its first Brexit-banking coup, with the firm allegedly considering a move to Frankfurt from London. European Commission President Jean-Claude Juncker noted that the EC supported Italy, despite the country forecasting a breach of legal budget deficit targets for the next two years. This lessened fears of further internal discord in the Eurozone. He also came down on the side of the European Central Bank (ECB), which has faced criticism – particularly from Germany – over its monetary policy.
German finalised consumer price index figures may be expected to show a downwards revision to earlier inflation estimates, but with the turbulence in the bond markets still ongoing, investors are likely to pay the data little attention.
US Dollar
The US Dollar was, surprisingly, performing bullishly yesterday. This was largely because markets were expecting that Donald Trump’s economic policies would cause a significant uptick in US inflation. This saw investors demanding higher yields for buying US treasuries, which resulted in government bonds in the States becoming a more lucrative investment opportunity. Strong inflation eats into the profits of a bond investment, as the money the holder receives upon maturity will buy less than when the bond was purchased. Strong demand for US bonds saw the US Dollar in strong demand as investors converted their cash in order to buy treasuries.
Considering the University of Michigan consumer confidence index due early on Saturday won’t reflect the fact that Trump won the election, it is likely the data will be considered largely obsolete.
Canadian Dollar
Crude oil was weakening and the markets were still largely contemplating the likelihood that Trump could end the North America Free Trade Agreement (NAFTA), which would be detrimental to the Canadian Dollar. The ‘Loonie’ may have been advancing versus its commodity peers, but overall the Canadian Dollar was recording notable losses.
New Zealand Dollar
The New Zealand Dollar was in a dire state yesterday, collapsing against its peers thanks to the combination of a surging US Dollar and the latest domestic policy action. The Reserve Bank of New Zealand (RBNZ) delivered the forecast interest rate cut, further undermining the ‘Kiwi’. The prospect of swelling US consumer prices boded ill for the New Zealand Dollar, as overheating inflation would likely demand an accelerated normalisation cycle from the Federal Reserve. Rising interest rates would strengthen the US Dollar, weakening the New Zealand Dollar, while making New Zealand investments less attractive; the gap between US yields and New Zealand Dollar yields could narrow significantly.
With the market gaze firmly turned away from New Zealand, today’s Business NZ performance of manufacturing index for October may have little impact upon the ‘Kiwi’.
Data Released
November 11th 08.30 NZD Business NZ Performance of Manufacturing Index (OCT)
November 11th 12.00 AUD RBA’s Debelle Panel Participation in Melbourne
November 11th 18.00 EUR German Consumer Price Index (YoY) (OCT F) 0.7%
November 12th 02.00 USD U. of Michigan Confidence (NOV P) 87.9