Australian Dollar
Investors were shocked by poor Australian inflation data for the fourth quarter of 2016 yesterday, causing the Australian Dollar to slump. Consumer price growth in the final three months of the year slowed to 0.5%, against expectations of a hold at 0.7%. Year-on-year growth still accelerated, but came in at 1.5% compared to forecasts of 1.6%. Originally markets were barely expecting one rate hike during 2017, with 40% odds on tightening in November, but the poor data threatens to put the Reserve Bank of Australia back on an easing bias.
Sterling
The Australian Dollar tumbled against the Pound yesterday, partly thanks to the poor Australian inflation data, but also because of the latest developments regarding Brexit. Theresa May took investors by surprise after quickly caving into MP’s demands for the government to publish a white paper detailing its Brexit plan. Lawmakers were expected to try and amend the Article 50 bill to include this as a requirement, so by pre-empting that Theresa May has lessened the chances the legislation will get held up in Parliament. Additionally, factory optimism hit a two-year high.
UK fourth-quarter GDP figures are set for release tonight and are predicted to show a slight slowdown in the pace of expansion both on the year and the quarter.
Euro
Weakening German business sentiment dragged the Euro lower yesterday. While business leaders surveyed by Ifo were marginally more upbeat on the current conditions, the business climate and expectations indices weakened from 111 to 109.8 and 105.5 to 103.2 respectively. Additionally, Greek Prime Minister Alexis Tsipras has told the country’s European creditors that he will authorise ‘not one Euro more’ of austerity. This was in response to suggestions Greece may need to further cut pensions and its income tax threshold in order to meet the conditions of its next tranche of bailout funding, despite these cuts being above the previously agreed measures to be taken under the terms of the bailout.
Germany’s GfK consumer confidence survey for February is the only data on the calendar today.
US Dollar
Despite its own headwinds, the Australian Dollar was able to make bullish gains against the US Dollar yesterday. Traders abandoned the ‘Buck’ in favour of higher-yielding assets like stocks. This was because President Donald Trump revived two major oil pipeline plans blocked by the Obama administration. Trump prioritising business over environmental concerns was interpreted positively by the markets, who saw this as the first of the fiscal stimulus measures promised during the election campaign.
US advance goods trade balance figures are released just after the turn of midnight and are expected to show a slight decrease in the deficit.
Canadian Dollar
One of the pipelines Donald Trump has approved, Keystone XL, will be a higher capacity version of an existing pipeline originating in Alberta’s oil sands. The Canadian Dollar naturally received a boost on the news as it will increase the capacity of oil exported to the US by 830,000 barrels per day. It also suggests that Trump is keen to keep strong economic ties with Canada, despite his dislike of the North American Free Trade Agreement (NAFTA) between the two nations and Mexico.
New Zealand Dollar
The approach of key inflation data today kept the New Zealand Dollar weak yesterday. Appetite for the Canadian Dollar, another commodity-correlated currency, also sapped demand for the ‘Kiwi’. Credit card spending figures for December boded well, recording growth of 3.1% on the month after November’s -4.2% decline and a more-than doubling on the year to 8.5%. Australia’s poor consumer price index figures likely unsettled investors, despite the two being unconnected.
As it stands, Q4 consumer prices are predicted to accelerate from 0.4% to 1.2% year-on-year, while showing a consistent 0.3% rise on the quarter.
Data Released
January 26th 08.45 NZD Consumer Prices Index (YoY) (4Q) 1.2%
January 26th 18.00 EUR German GfK Consumer Confidence Survey (FEB)
January 26th 20.30 GBP Gross Domestic Product (YoY) (4Q A) 2.1%
January 27th 00.30 USD Advance Goods Trade Balance (DEC) -$64.4b