Australian Dollar
The Australian Dollar slumped yesterday after the latest GDP figures shocked investors by printing significantly below forecast. Markets had already been bearish on the ‘Aussie’ due to the potential for the upcoming data to reveal a -0.1% quarter-on-quarter contraction, so the actual decline of -0.5% triggered a swift Australian Dollar sell-off. Year-on-year GDP was also disappointing, weakening from 3.1% to 1.8%, which was -0.4% worse than predicted.
The Australian Dollar may be able to recover some of yesterday’s losses if the upcoming trade balance data for October shows the deficit more than halved from -AU$1227 million to -AU$610 million, as predicted.
Sterling
Production figures caused the Pound to slump yesterday, allowing AUD/GBP exchange rates to advance despite the headwinds facing the ‘Aussie’. Industrial production and manufacturing production data revealed large contractions on the year and the month, disappointing forecasts. Industrial production fell -1.3% on the month and -1.1% on the year; manufacturing dropped -0.9% and -0.4% respectively. This caused investors to reassess the strong PMIs released since the referendum, with fears that the surveys may have painted a falsely positive picture of the UK economy.
The UK Supreme Court hearing of the government’s appeal over Parliament’s involvement in the decision to trigger Article 50 is in its final day today.
Euro
The Euro saw choppy advances yesterday, with the latest speculation over the future of the Italian banking sector taking centre stage. Multiple rumours were circulating, including that the Italian government may ask the European Stability Mechanism (ESM) for help; that the government may take a stake of €2 billion in failing Monte dei Paschi, and that Prime Minister Matteo Renzi may not resign after all, which would stymie the progress of the populist Five Star Movement and also help to secure the future of the banking sector.
The European Central Bank (ECB) meets today to discuss monetary policy. Markets are largely expecting the Governing Council to extend quantitative easing beyond the current end date of March 2017.
US Dollar
There has been a ceiling above the US Dollar for several days now, with the ‘Greenback’ limited by the fact that markets have firmly priced-in an interest rate hike from the Federal Reserve next week. While little is likely to happen to lower or increase the chances of monetary policy tightening, markets are still sensitive to developments surrounding incoming US President Donald Trump. According to the 2016 winner of the Nobel Prize in economics, Oliver Hart, Trump’s protectionist policies will be bad for the US economy. ‘The idea of tearing up trade agreements or imposing tariffs is not a good way forward, so I’m worried about that,’ Hart said in an interview.
The US consumer credit report is the only data left for release today. The figure is expected to shrink from US$19.3 billion to US$18.7 billion.
Canadian Dollar
The approach of this morning’s early Bank of Canada (BOC) interest rate decision kept the Canadian Dollar on lacklustre form yesterday. The BOC wasn’t expected to make any changes to monetary policy during the meeting – or at any point until 2018, in fact – but markets were interested to see how it factored in the recent huge rise in oil prices into its outlook.
New Zealand Dollar
The New Zealand Dollar was on the rise yesterday as investors finally recovered from the shock resignation of Prime Minister John Key and bought the ‘Kiwi’ up from its lows. Appetite for the New Zealand Dollar was also aided by the weak US Dollar, Australian Dollar and Canadian Dollars, leaving the ‘Kiwi’ as the currency of choice for yield-seeking investors in a risk-on trading environment.
Data Released
December 8th GBP UK Supreme Court Hears Government-Parliament Brexit Appeal
December 8th 07.00 USD Consumer Credit (OCT) $18.650b
December 8th 11.30 AUD Trade Balance (Australian dollar) (OCT) -AU$610m
December 8th 23.45 EUR ECB Asset Purchase Target (DEC) €80b