Australian Dollar
An unexpectedly sharp weakening in third quarter company operating profits weighed heavily on the ‘Aussie’, undermining confidence in the strength of the Australian economy.
Market risk appetite was generally limited by the fallout from the Italian constitutional referendum, with the strength of the US Dollar denting commodity prices. With the global political landscape still far from stable, the appeal of the higher-risk Australian Dollar has been limited, despite many of the fundamentals of the domestic economy remaining robust.
Volatility could be in store for the antipodean currency if policymakers prove more dovish at the Reserve Bank of Australia’s (RBA) policy meeting, although expectations are for there to be no particular shift in policy at this juncture.
Sterling
The beginning of the Supreme Court Brexit hearing limited the appeal of the Pound overnight, with investors still jittery over the uncertainty surrounding the UK’s future outside the EU. While it will take some time for a verdict to be reached, the potential for further twists in the path towards Brexit has been enough to dampen the mood towards Sterling. Even so, signs from the UK economy remained generally positive and the Pound found some support on the back of a stronger-than-expected Services PMI.
Should November’s BRC like-for-like sales figure prove positive, Pound exchange rates could be shored up – although the issue of Brexit is likely to continue to dominate the minds of investors.
Euro
The single currency soon began recovering some of its losses following the resignation of Italian Prime Minister Matteo Renzi, with market nerves beginning to calm. Renzi’s loss over constitutional reforms was not unexpected and a ‘No’ vote had already been largely priced into EUR exchange rates. Austria’s election of independent candidate Alexander Van der Bellen instead of the far-right’s Norbert Hofer helped to calm some of the anxiety surrounding the future of the Eurozone, particularly as Eurogroup finance ministers remained largely upbeat at their final meeting of the year.
If German factory orders are shown to have strengthened in October then the Euro could claw back further ground against rivals, particularly if political anxiety continues easing.
US Dollar
Signs continued to point towards the Federal Reserve raising interest rates at its December policy meeting. In another positive sign for the world’s largest economy the ISM non-manufacturing composite index bettered forecasts to jump from 54.8 to 57.2 in November. With the service sector remaining resilient despite the shifting political landscape, confidence in the US economy was shored up. The ‘Greenback’ also benefitted from the softness of the Euro at the start of the week thanks to the negative correlation of the EUR USD exchange rate.
Providing there are no major downside surprises from upcoming US ecostats, the US Dollar is likely to remain on a stronger footing, with an imminent Fed rate hike considered all but certain by markets.
Canadian Dollar
Oil prices have continued to reap the reward of OPEC’s decision to cut output, breaking back above the US$55 per barrel mark early in the week. Even with higher-risk assets falling out of favour, this helped to keep the Canadian Dollar on an uptrend against many of its rivals. While the long-term impact of the OPEC announcement remains questionable, this could continue to underpin the oil market for some days to come.
While no action is expected from the Bank of Canada (BOC) later this week, the prospect of greater policymaker caution could nevertheless limit the appeal of the ‘Loonie’.
New Zealand Dollar
After Prime Minister John Key unexpectedly resigned on Monday, the ‘Kiwi’ has been under increased pressure. Investors were dismayed by the prospect of Key’s departure given his popularity and long presence in the role. This overshadowed more positive domestic data, with the ANZ commodity price index having risen sharply in November.
Demand for the New Zealand Dollar could pick back up again in response to the latest GlobalDairyTrade auction, however, if prices continue to improve.
Data Released
December 6th 11:01 GBP BRC Like-For-Like Sales (YoY) (NOV)
December 6th 11:30 AUD Current Account Balance (3Q) -13.7 billion
December 6th 14:30 AUD Reserve Bank of Australia Rate Decision 1.5%
December 6th 18:00 EUR German Factory Orders (YoY) (OCT)