Australian Dollar
The robustness of the Australian economy came into further question on Thursday, with investors disappointed to find that October’s trade deficit had unexpectedly widened. This could put further pressure on the Reserve Bank of Australia (RBA) to return to a monetary easing bias in the near future, a prospect that would be negative for the ‘Aussie’. As a result the antipodean currency was prompted to trend lower across the board, despite an unexpectedly strong increase in Chinese imports boosting commodity prices.
This morning’s Australian loan data could put further pressure on the ‘Aussie’, with forecasts pointing towards a contraction in lending in October.
Sterling
November’s RICS house price balance proved unexpectedly encouraging for the Pound, with prices having increased 30% on the month. While recent production and growth data has pointed towards weakness within the domestic economy this positive sign from the housing market nevertheless shored up investor confidence. Some measure of support for Sterling also came from Parliament’s passing of the opposition day motion calling for the government to reveal more of its Brexit negotiating strategy, although this was also seen to give support to Theresa May’s March deadline for triggering Article 50.
Jitters over the outlook of the UK economy could hamper the Pound ahead of the weekend, however, if October’s visible trade deficit fails to narrow in line with forecasts.
Euro
The Euro saw some volatile trading overnight thanks to the European Central Bank’s (ECB) final policy meeting of the year. Investors had expected to see the quantitative easing program extended by six months, prompting a mixed reaction when policymakers instead announced a nine-month extension even as the value of asset purchases was lowered from 80 billion to 60 billion. Although the Euro initially rallied on the announcement, comments from ECB President Mario Draghi soon reversed these gains, with an end to monetary easing not seeming to be in sight for the central bank.
Demand for the single currency could be dented further if Germany’s trade surplus is found to have narrowed from 24.4 billion to 22.0 billion on the month.
US Dollar
The US Dollar may have started the day trending negatively, but by the end of the session the ‘Greenback’ had racked up gains versus many of its major peers. With the European Central Bank remaining dovish for the foreseeable future, the divergence in monetary policy between Europe and the States is only going to increase. Higher interest rates in the US compared to the Eurozone is going to boost foreign appetite for US assets; investors can borrow Euros at a low interest rate and use them to buy US securities, which have a strong yield thanks to higher interest rates. This will fuel US Dollar demand in the future, improving even further the outlook for the ‘Buck’.
Tonight’s University of Michigan Confidence Index could offer some support to the ‘Greenback’ as investors expect to see a further uptick in domestic sentiment.
Canadian Dollar
The Canadian Dollar was largely on bullish form yesterday thanks to strong domestic data and a positive economic outlook for Alberta – the country’s key oil-producing region. Capacity utilisation in Q3 and new housing prices in October both increased marginally, while building permits saw an impressive 8.7% jump on the month. Also improving the ‘Loonie’s fortunes was a prediction by the Conference Board of Canada regarding the outlook for Alberta. The key oil-producing region is currently in the grips of one of the worst recessions in the province’s recent history but according to the Board, this is soon to be over. 2017 could see the region return to growth, as the newfound stability in crude oil markets helps counterbalance the decline in capital spending.
There is no Canadian data set for release today.
New Zealand Dollar
The New Zealand Dollar was largely mixed yesterday, making gains against weakened currencies such as the Pound, Australian Dollar and Euro, but falling versus the US Dollar and Canadian Dollars. Chinese trade data revealed an unexpected 13% surge in imports – a good sign for New Zealand trade – but the day’s ECB developments had sparked a rush for the safe-haven US Dollar, leaving the risky ‘Kiwi’ rudderless.
Domestic data for New Zealand includes card spending figures, but investors may pay more attention to the upcoming Chinese consumer price index. Inflation is predicted to have risen, which bodes well for New Zealand exporters; rising prices suggest increased demand for overseas goods.
Data Released
December 9th 08:45 NZD Card Spending (MoM) (NOV)
December 9th 11:30 AUD Home Loans (OCT) -1.0%
December 9th 18:00 EUR German Trade Balance (OCT) 22 billion
December 9th 20:30 GBP Visible Trade Balance (OCT) -11.8 billion
December 10th 02:00 USD University of Michigan Confidence Index (DEC P)
94.5