Australian Dollar
Investors sold the Australian Dollar on Friday after credit ratings agencies warned that the government borrowing more money to finance a new railroad project could lower its credit rating. Australia currently has a prized AAA rating, but this could be jeopardised by the government’s plans to finance a new inland railway that critics say will have little economic benefit. Treasurer Scott Morrison recently assured those concerned that the ratings agencies wouldn’t be worried by the debt pile being expanded, with the borrowing falling into the category of ‘good debt’. But Moody’s and S&P have both suggested otherwise, because Australia’s national debt is ballooning and adding to it could decrease the government’s ability to keep up payments.
The Reserve Bank of Australia (RBA) makes its next policy decision on Tuesday. Investors are expecting a hold on interest rates at 1.50%.
Sterling
AUD/GBP weakened on Friday; a surprising movement considering the worse-than-expected GDP figures released for the first quarter of 2017. Year-on-year GDP was predicted to accelerate from 1.9% to 2.2%, but stopped short at 2.1%. Quarterly growth also printed -0.1% below anticipation, weakening from 0.7% to 0.3%. The slowdown in expansion was largely due to weakness in the service sector, which saw the pace of growth drop from 0.8% to 0.3%.
After the first quarter’s growth disappointed, investors will be paying close attention to this week’s UK PMIs for April; especially the services and composite indices, which are released on Thursday.
Euro
Above-forecast consumer price figures from the Eurozone in April boosted the Euro on Friday. The common currency registered bullish gains after overall consumer price growth accelerated from 1.5% to 1.9%, beating forecasts of 1.8%. The core price index, which is the preferred measure for central banks to use when setting monetary policy, jumped from an upwardly-revised 0.8% to 1.2% – beating forecasts of 1%. Combined with Thursday’s German consumer price figures, which came in above expectations, the strong inflation data put more pressure on the European Central Bank (ECB) to rethink its ultra-loose policy outlook.
Wednesday will be a busy day for Euro trading, as German labour market data and Eurozone first-quarter GDP figures are set for release.
US Dollar
The US Dollar was on mixed form on Friday after disappointing GDP figures were released. First-quarter economic growth dropped from 2.1% to 0.7% – a fall to 1% had been predicted. Personal consumption figures also performed poorly, dropping from 3.5% to 0.3%. However, while the US Dollar was weakening against some currencies, it was not faring as poorly as might have been expected. Economists pointed out that a combination of record vehicle sales in 2016 Q4 and an unusually warm winter reducing spending on utilities distorted the figures, so there should be a rebound to some extent in the second quarter of 2017.
The next Federal Open Market Committee (FOMC) monetary policy decisions will be announced early on Thursday morning. Investors are expecting no change to interest rates, but there may be more information about shrinking the balance sheet of assets bought through quantitative easing. The accompanying statement may also contain clues as to how likely the Fed is to hike interest rates in June, which the markets have bet on.
Canadian Dollar
Like the Pound and US Dollar, the Canadian Dollar was also contending with poor GDP figures on Friday. The Canadian economy stagnated on the month in February, registering zero growth against expectations of a slowdown from 0.6% to 0.1%, while year-on-year GDP rose from 2.3% to 2.5% instead of to 2.6% as economists had predicted. Crude oil was making noticeable gains, but WTI remained below US$50 per barrel and Brent below US$52, so the Canadian Dollar received little support from this.
The Canadian Dollar could see volatile trading on Friday, given that Bank of Canada (BOC) Governor Stephen Poloz is set to give a speech in the morning, while key employment data is released late in the night.
New Zealand Dollar
The New Zealand Dollar slumped on Friday, despite some positive trade figures. The overall trade balance rose from a deficit of NZ$18 million to a surplus of NZ$332 million. While this was almost -NZ$40 million lower than forecast, it was still the first time in nine months that New Zealand recorded a positive trade balance. However, investors were in no mood for risk and so continued to sell the ‘Kiwi’.
Headline New Zealand employment figures will be released on Wednesday, which could create some volatility for the New Zealand Dollar.
Data Released
May 2nd 14.30 AUD Reserve Bank of Australia Rate Decision (2 MAY) 1.50%
May 3rd 08.45 NZD Employment Change (YoY) (1Q)
May 3rd 19.00 EUR Eurozone Gross Domestic Product s.a. (YoY) (1Q A) 1.7%
May 4th 04.00 USD Federal Open Market Committee Rate Decision (3 MAY) 1.00%
May 4th 18.30 GBP Markit/CIPS UK Services PMI (APR) 54.5
May 5th 06.25 CAD Bank of Canada Governor Stephen Poloz Speech in Mexico