Australian Dollar
The Australian Dollar raced higher on Friday after the latest US economic data seriously disappointed. Despite an empty data calendar, the ‘Aussie’ was able to record gains of between 0.5% and 1% versus the major currencies.
There is plenty on the economic data calendar this week to keep the Australian Dollar on the move. Tuesday sees the release of the minutes from the Reserve Bank of Australia’s (RBA) latest monetary policy meeting. The RBA was more pessimistic than markets had expected, so it is likely that the minutes won’t do anything to improve appetite for the ‘Aussie’.
Sterling
AUD/GBP gained half a percent on Friday, although elsewhere the Pound was making some modest gains. There was no fresh UK data released, leaving the Pound to coast higher on the back of Thursday’s optimistic comments from Bank of England (BoE) policymaker Ian McCafferty. He called for the bank to consider an early exit to the quantitative easing programme, suggesting August’s monetary policy meeting could see some rather interesting splits emerging between policymakers. This kept Sterling on the rise.
Tuesday’s UK consumer price index figures may cause some head-scratching. Weakening inflation will relieve the pressure on consumer spending, but would also lessen the odds of the Monetary Policy Committee (MPC) deciding that interest rates need hiking.
Euro
US Dollar weakness was also benefitting the Euro on Friday. The common currency made some modest gains versus the majors, although appetite for riskier assets such as the Australian Dollar and the New Zealand Dollar meant the Euro also recorded some strong losses.
The European Central Bank (ECB) will make its latest monetary policy decisions on Thursday. Investors will once again be watching closely for signs that adjustment to the quantitative easing programme have been discussed.
US Dollar
Poor US data cut the odds of another interest rate hike this year and so the US Dollar plummeted on Friday. Consumer prices stagnated on the month, while the year-on-year CPI clocked in at 1.6% – one basis point below forecasts in both cases. Advance retail sales dropped -0.1% instead of growing by 0.1% during June. With Janet Yellen having said just two days prior that weaker inflation would give the Federal Reserve pause for thought with regard to further monetary tightening, it was hardly surprising that the odds of a December hike fell below 50%.
There is little of note on the US economic calendar this week. Even the most influential data – initial and continuing jobless claims – would have to print significantly above or below previous figures to cause any strong movement for the ‘Greenback’.
Canadian Dollar
The falling US Dollar had pushed crude oil prices up significantly, but the Canadian Dollar was unable to benefit. Anxiety caused the ‘Loonie’ to slump, with markets awaiting news from the meetings between Canadian and US officials with the aim of building relationships before the North American Free Trade Agreement (NAFTA) is renegotiated.
Canadian consumer price data for June is scheduled for release on Friday. With the Bank of Canada (BOC) having said after last week’s rate hike that weakness in inflation was likely temporary, markets will want to see evidence of strong price growth if the outlook on policy is to remain positive.
New Zealand Dollar
The Australian Dollar was clearly the risk asset of choice on Friday, as the New Zealand Dollar largely failed to benefit from the tumbling ‘Greenback’. The Business NZ performance of manufacturing index provided no support after falling two points to 56.2.
Second-quarter consumer price figures from New Zealand are set for release on Tuesday. Signs that price pressures continue to grow would help boost the ‘Kiwi’, although this itself carries the risk that strong NZD exchange rates will deter the Reserve Bank of New Zealand (RBNZ) from raising borrowing costs.
Data Released
July 18th 08.45 NZD Consumer Prices Index (YoY) (2Q)
July 18th 11.30 AUD RBA July Rate Meeting Minutes
July 18th 18.30 GBP Consumer Price Index (YoY) (JUN) 2.7%
July 20th 21.45 EUR European Central Bank Rate Decision (JUL 20) 0.00%
July 20th 22.30 USD Initial Jobless Claims (JUL 15) 246k
July 21st 22.30 CAD Consumer Price Index (YoY) (JUN) 1.4%