Australian Dollar
Poor economic data caused the Australian Dollar to slump yesterday. Although the Australian trade balance remained in surplus – a trend only started very recently after nearly three years in deficit – the $1.3 billion windfall represented a severe narrowing in the gap between exports and imports. Economists had expected the surplus to swell to $3.8 billion. Additionally, December’s record-breaking $3.5 billion surplus was cut down by around -$180 million and the sharp fall in building approvals accelerated even further to -12%.
February’s Australian performance of services index is set for release this morning.
Sterling
The Australian Dollar to Pound Sterling exchange rate fell over -1% yesterday, partly due to weakness in the ‘Aussie’ but also because GBP was bouncing back from an earlier sell-off. Markets weren’t initially impressed with the latest construction PMI from Markit, even though it showed growth in the sector unexpectedly accelerated slightly. Sterling weakened, but quickly rebounded. Whether or not the recovery was merely a ‘dead cat’ bounce remains to be seen; economists have warned the Pound could be set to fall further once Theresa May triggers Article 50, which is likely to happen before the end of the month. Traders closing short positions on Sterling by buying back into the currency also helped push GBP higher.
The vital UK services and composite PMIs are set for release later today. Should the survey results mimic those of the worse-than-expected manufacturing index, AUD/GBP could make a bullish recovery.
Euro
Eurozone consumer price index figures failed to push the Euro into a broad rise yesterday, with the common currency remaining mixed across the board despite strong price growth. While overall prices rose 2% – an acceleration on January’s 1.8% – core prices remained at 0.9%. This could complicate the outlook for monetary policy; overall price growth is now technically above the European Central Bank’s (ECB) target, but core price growth remains far below. Investors were unsure to what extent the Governing Council would tolerate headline inflation rising above-target while waiting for a pick-up in core price growth. This uncertain outlook on monetary policy kept the Euro weak versus its peers that weren’t experiencing strong headwinds themselves.
Eurozone retail sales data will be released today, along with a slew of finalised services and composite PMIs for the currency bloc as a whole and individual member states.
US Dollar
The US Dollar was bullish yesterday, boosted by more hawkish comments from Federal Reserve officials, as well as strong unemployment claims figures. While both Robert Kaplan and Lael Brainard separately argued for a gradual pace of monetary normalisation, they both claimed it either was, or was likely to be, appropriate to hike rates soon to avoid the Fed becoming ‘behind the curve’ in terms of dealing with inflation. Additionally, the US Dollar was supported by the news that last week saw the lowest rate of initial jobless claims in 44 years. It was also the 104th consecutive week that fewer than 300,000 new people claimed out of work benefits, which is considered the threshold for a healthy labour market.
There are a handful of Federal Reserve officials speaking very early tomorrow, including Chair Janet Yellen.
Canadian Dollar
The Canadian Dollar was on mixed form yesterday, with little in the way of positive domestic data or news to support demand for the ‘Loonie’. The latest Bank of Canada (BOC) meeting yielded no surprises, with interest rates remaining frozen at 0.5% for the twentieth consecutive month. Governor Stephen Poloz stressed that there were notable risks to the Canadian economy ahead and even reiterated that it was not impossible that the BOC would cut rates again. Add onto this the fact Brent crude oil prices were falling -1.8% and WTI -2% in the face of a strong US Dollar and it was hardly surprising investors remained cool on the Canadian Dollar.
New Zealand Dollar
Comments from Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler on the outlook of monetary policy weakened the New Zealand Dollar yesterday. The ‘Kiwi’ slumped after Wheeler reaffirmed that the official cash rate (OCR) was expected to remain at 1.75% until nearly 2020. He even stated that overseas pressures upon the New Zealand economy were more likely to have a negative than positive effect, saying ‘in effect, there is an equal probability that the next OCR adjustment could be up or down’. The suggestion that New Zealand monetary policy could actually be loosened sent traders fleeing from the New Zealand Dollar.
Only low-impact data is set for release from New Zealand today, which could leave the ‘Kiwi’ open to pressures created by the Chinese services and composite PMIs from Caixin.
Data Released
March 3rd 09.30 AUD AiG Performance of Service Index (FEB) 52.9
March 3rd 12.45 CNY Caixin China PMI Composite (FEB) 52
March 3rd 20.30 GBP Markit/CIPS UK Services PMI (FEB) 54.1
March 3rd 21.00 EUR Eurozone Retail Sales (YoY) (JAN) 1.6%
March 3rd 05.00 USD Yellen Gives Economic Outlook Speech in Chicago