Australian Dollar
Strong labour market data supported the ‘Aussie’ yesterday. December was expected to see a rise in employment of 10,000, but instead saw job creation of 13,500. Although the unemployment rate edged higher from 5.7% to 5.8%, this was because of an increase in the number of people actively looking for work. Consumer inflation expectations also rose from 3.4% to 4.3% – a positive sign that the Reserve Bank of Australia (RBA) could be faced with stronger consumer activity and therefore have to be more hawkish in its policy bias.
Although home sales data for Australia is released today, the most influential data for the ‘Aussie’ will be the Q4 Chinese GDP figures published this afternoon. Investors will want to see continued signs of a healthy economy from Australia’s largest trading partner.
Sterling
AUD/GBP registered some minor gains, while elsewhere the Pound was performing strongly. Investors were still cheered by the news that the Supreme Court will announce its judgement on Article 50 towards the beginning of next week. The government had challenged a High Court ruling stating that it needed to secure the approval of Parliament before invoking the official EU exit clause. However, investors were of the opinion that the 11 Supreme Court Justices would uphold the High Court ruling. This could give Parliament the ability to temper the more hard-line aspects of Theresa May’s Brexit plans.
UK retail sales for December are released this evening. The Pound could be supported by a strong rise, given that this data covers the busy Christmas period.
Euro
Mario Draghi caused the Euro to slump yesterday; a phrase traders will be very familiar with. The European Central Bank (ECB) Chief, speaking after an uneventful policy meeting, attributed the recent strength of inflation to oil prices. There are two versions of the consumer price index; the ‘core’ index excludes data from volatile energy prices to give a more accurate picture of inflationary pressures. Core inflation is therefore usually weaker than non-core and so gives the ECB plenty of breathing space before it hits its target of around 2% and policymakers need to start explaining why they aren’t tightening monetary policy in response.
The ECB will release the results of its latest Survey of Professional Forecasters this evening. Investors will be hoping to see a consensus view that inflation is set to remain on an upwards trajectory.
US Dollar
The US Dollar was mixed yesterday, with commodity appetite keeping riskier assets on the advance. Markets were concerned by recent comments from Federal Reserve Chair Janet Yellen, predicting her stance could put her on a collision course with Donald Trump. Yellen claimed that the labour market was at full employment – something Trump would surely disagree with, given his election campaign promises to bring jobs back to the States. This has raised concerns that the President and central bank may hold different views of what a ‘healthy’ US economy looks like; Fed policy may end up working against fiscal stimulus if policymakers view the growth Trump is trying to achieve as a sign of the economy overheating.
Donald Trump will be inaugurated as US President very early on Saturday morning. Investors may return to the US Dollar on the hope he will confirm that he will introduce strong stimulus spending plans in the coming days.
Canadian Dollar
Bank of Canada (BOC) Governor Stephen Poloz surprised markets yesterday by commenting that an interest rate cut might be on the table. Speaking at a press conference following the latest policy meeting, Poloz noted that there were several downside risks to the economy that, should they materialise, would warrant further loosening of monetary policy. Investors had expected the BOC to remain on hold until well into 2018 and even then were expecting the next move to be a hike. News a cut could come in 2017 therefore caused the Canadian Dollar to slump.
Canadian inflation data is set for release very early tomorrow morning. The forecasts are for accelerating price growth from 1.2% to 1.7%, but whether this will be enough to convince traders that the BOC won’t need to cut rates remains to be seen.
New Zealand Dollar
Some strong domestic data and an uncertain US Dollar allowed the New Zealand Dollar to advance bullishly yesterday. The performance of manufacturing index for December didn’t technically rise, because the previous month’s figure was revised up to match the latest print of 54.5. Although the number of building permits issued in November dropped -9.2%, consumer confidence saw a 3.4% rise to 128.7.
Data Released
Friday 20th 13.00 CNY Gross Domestic Product (YoY) (4Q) 6.7%
Friday 20th 20.00 EUR ECB Survey of Professional Forecasters
Friday 20th 20.30 GBP Retail Sales (YoY) (DEC) 7.2%
Saturday 21st 00.30 CAD Consumer Price Index (YoY) (DEC) 1.7%
Saturday 21st 01.00 USD United States Presidential Inauguration