Australian Dollar
A strong US Dollar and a negative outlook for Australia’s banks weighed on the Australian Dollar yesterday, with the ‘Aussie’ slumping against a number of its peers. Ratings agency Fitch downgraded its outlook on the Australian banking sector, following a similar move from agency Moody’s made last August, while S&P cut its outlook in July. According to Fitch, the key risk came from overexposure to Australia’s overheating property market. Additionally, Fitch commented that it does not see the Reserve Bank of Australia raising interest rates in the near-term, souring appetite for the ‘Aussie’.
The latest ANZ Roy Morgan consumer confidence index will be released today.
Sterling
Despite the poor appetite for the Australian Dollar yesterday, AUD/GBP exchange rates were bullish. Traders got the strongest indication yet that the UK is heading for a ‘Hard Brexit’, after government officials claimed Theresa May’s upcoming speech on Brexit would contain promises to take the UK out of the customs union, European Court of Justice (ECJ) and the single market. The Pound had been recovering from its October lows on investor hopes the UK government may bow to pressure and protect single market access, but Sterling slumped on the news immigration controls would remain the Prime Minister’s key focus.
Theresa May is set to give her Brexit speech today. Should she confirm what the rumours have been saying, the Pound is likely to fall even further.
Euro
Positive trade data failed to support the Euro yesterday. The November trade surplus saw a strong rise to €22.7 billion on a seasonally-adjusted basis and €25.9 billion on a non-adjusted basis. Although there is a monetary policy meeting from the European Central Bank (ECB) later this week, economists largely expect that it will be mid-2018 at the earliest before the Governing Council acts to curb quantitative easing. Additionally, there was speculation that, if creditors don’t complete a second bailout review soon, Greece may be forced to undergo a fourth bailout, complete with even harsher austerity measures than are currently being endured by the country’s populace.
The Euro could be set for a late night boost today, thanks to the release of the German ZEW sentiment survey. The current situation index is expecting to rise from 63.5 to 65.
US Dollar
US markets were closed yesterday, in observation of Martin Luther King Day, thinning US Dollar trade. Despite a lack of data, the ‘Greenback’ saw strong demand, with traders still feeling positive ahead of the week’s upcoming inauguration of Donald Trump as President. Although Trump may not have given any details of his investment and spending plans, traders were still confident that he would stand by his election promises, which would eventually boost inflation and necessitate the tightening of monetary policy.
Canadian Dollar
The Canadian Dollar was largely advancing yesterday, although the ‘Loonie’ was unable to make particularly strong gains. Crude oil markets were providing little support, with both WTI and Brent holding around their opening levels. While investors are unsettled by the potential impact Donald Trump’s Presidency could have upon the Canadian economy, Finance Minister Bill Morneau has indicated that he will leave room in the budget to deal with economic disruption. Additionally, the International Monetary Fund’s (IMF) latest global forecast predicted that the Canadian economy will outpace most of the G7 in the next two years.
New Zealand Dollar
The New Zealand Dollar was largely bullish yesterday, despite an acceleration in the decline of food prices. An important indication of future inflationary pressure, accounting for around a fifth of the consumer price index, food prices fell -0.8% in December, after a -0.1% fall in November. New Zealand Prime Minister Bill English reignited hopes that something could be salvaged from the potential wreckage of the Trans Pacific Partnership (TPP), which many have claimed is heading for collapse after Donald Trump takes power, due to the likelihood he will tear up the agreement. But English claims that there is still an economic benefit to the deal, even without the US, in particular thanks to the closer ties with another major trading partner – Japan – that the deal could bring.
The next Global Dairy Trade auction takes place today. Dairy prices have fallen at the last two events; a continuation of this trend would significantly undermine the ‘Kiwi’.
Data Released
January 17th GBP UK Prime Minister May Speaks on Her Brexit Approach
January 17th NZD Dairy Auction Whole Milk Powder MT (JAN 17)
January 17th 09.30 AUD ANZ Roy Morgan Weekly Consumer Confidence Index (JAN 15)
January 17th 21.00 EUR German ZEW Survey (Current Situation) (JAN) 65