Australian Dollar
Demand for the ‘Aussie’ surged in the wake of December’s trade balance figure, which bettered forecasts as the surplus widened from 2.0 billion to 3.5 billion. While much of this strength was attributable to the sharp increase in commodity prices seen at the end of the year, the data nevertheless boosted confidence in the outlook of the Australian economy. Given the wideness of the trade surplus, the odds of the Reserve Bank of Australia (RBA) cutting interest rates in the near future were seen to decrease. A general increase in market risk appetite equally helped to shore up the Australian Dollar on Thursday.
This morning’s Services PMI could return the ‘Aussie’ to a downtrend, however, as forecasts point towards a loss of momentum within the sector.
Sterling
The Pound continued to experience elevated volatility overnight, with markets unimpressed by the latest commentary from the Bank of England (BoE). As the Monetary Policy Committee (MPC) voted unanimously to leave interest rates on hold and the quantitative easing program unaltered there was little sign of hawkishness. While the Inflation Report showed an upward revision to the Bank’s growth forecasts this was not enough to encourage investors, with Governor Mark Carney having reiterated that interest rates could move either way in the future. With Brexit jitters also hampering sentiment Sterling was prompted to trend lower across the board.
If January’s UK Services PMI falls in line with market expectations then the AUD GBP exchange rate could extend its gains at the end of the week.
Euro
Investors were discouraged to find that the European Central Bank (ECB) had maintained its dovish policy stance in its latest Economic Bulletin. The report repeated that policymakers have yet to see signs of a ‘convincing upward trend’ in underlying domestic inflation, suggesting that the ECB is unlikely to consider tapering its bond-buying program in the near future. However, stronger-than-expected Eurozone producer price index figures and the weakness of the US Dollar both helped to limit the downside bias of the single currency.
December’s Eurozone retail sales figures are expected to show a weakening in consumer spending on the year; something which could diminish the appeal of the Euro more substantially.
US Dollar
The first Federal Reserve policy meeting of 2017 did not offer any particular support to the ‘Greenback’. Although policymakers maintained an optimistic outlook, investors were disappointed by the lack of signal as to when the next interest rate rise might occur. Political factors also put downside pressure on the US Dollar, with the new administration continuing to demonstrate an increasingly isolationist and protectionist stance. A larger-than-expected dip in jobless claims was thus not enough to boost the appeal of USD.
Even so, a stronger showing from January’s Non-Farm Payrolls report could offer the US Dollar a rallying point tonight.
Canadian Dollar
Following a solid uptick in the Canadian Manufacturing PMI the appeal of the ‘Loonie’ remained elevated. Although the latest US crude oil inventories data pointed towards a further increase in US production this failed to dent the price of Brent crude. Comments from the Russian Oil Minister that global output had fallen by -1.6 million barrels a day in January pushed oil prices higher once again, benefitting the commodity-correlated Canadian Dollar.
As long as risk appetite stays strong the ‘Loonie’ should hold onto an uptrend ahead of the weekend.
New Zealand Dollar
In spite of an absence of supportive New Zealand data the ‘Kiwi’ was buoyed on Thursday, benefitting from the negative market reaction to the Fed policy meeting. With US interest rates looking unlikely to rise in the near future, the chances of the Reserve Bank of New Zealand (RBNZ) returning to an easing bias lessened. With risk appetite bolstered by the weakness of the US Dollar, NZD exchange rates were encouraged to recover some of the ground lost earlier in the week.
If the ANZ commodity price index shows an improvement on the month this morning the New Zealand Dollar could find further support.
Data Released
February 3rd 09:30 AUD Services PMI (JAN)
February 3rd 11:00 NZD ANZ Commodity Price (JAN)
February 3rd 20:30 GBP Services PMI (JAN) 55.8
February 3rd 21:00 EUR Eurozone Retail Sales (YoY) (DEC) 1.8%
February 4th 00:30 USD Change in Non-Farm Payrolls (JAN) 175,000