Australian Dollar
The Reserve Bank of Australia (RBA) may have sounded positive in its overall forecast for the domestic economy, but its outlook on monetary policy weakened the Australian Dollar yesterday. Despite noting strong growth, improving consumption and the waning effect from the end of the mining boom, inflation and wages were predicted to remain sluggish. This saw policymakers expecting to leave interest rates on hold for some time; a prospect that saw investors selling out of the ‘Aussie’.
RBA Governor Philip Lowe will make a speech in Sydney today.
Sterling
AUD/GBP struggled around opening levels yesterday, with the Pound on decidedly mixed form across the board. On a positive front, the latest government borrowing figures showed the largest January surplus for 17 years. December’s deficit was revised -£2.2 billion smaller, while January’s surplus clocked in at just under £10 billion. However, unsettling comments from Bank of England (BoE) officials appearing before the Treasury Select Committee unnerved investors. Of particular note was the divergence in attitude to inflation, with Mark Carney remaining dovish on the need to hike rates.
Second-round estimates of fourth-quarter UK GDP are released today. The first estimate already outpaced forecasts, so economists are not expecting any changes to these projections.
Euro
Strong economic data failed to boost the Euro yesterday, despite an improved outlook for the currency bloc economy. Virtually all of the day’s Markit PMIs greatly bettered forecasts, showing Eurozone manufacturing and private sector growth had reached its fastest pace in nearly six years this month. However, the latest polls have put Marine Le Pen in front as the favourite to win the first round of the French Presidential elections. The far-right candidate is expected to get through to the second round before being defeated, but Brexit and Donald Trump’s US election victory have shaken those beliefs. Investors sold out of the common currency on the fears that Eurosceptic Le Pen could actually make it into power in a few months’ time.
The Euro could receive a boost tomorrow if Eurozone consumer price data continues showing accelerating price growth, although the real issue will remain whether or not the European Central Bank (ECB) acknowledges the rise as significant.
US Dollar
Traders were relieved to hear yesterday that economists didn’t think the controversial travel ban Donald Trump is trying to implement will damage the economy during 2017. Bloomberg found that 70% of economists polled saw ‘little to no’ negative effect; this is largely because they don’t see that the travel ban will actually be successfully implemented. Meanwhile, Chinese Premier Li Keqiang played down the likelihood of a trade war with the US, commenting that he believed the countries can settle their differences amicably. Bets of monetary tightening in March were also rising, although at 22.1% there is still a long way to go before markets believe an upwards move is guaranteed.
Minutes from the Federal Open Market Committee’s (FOMC) latest meeting will be released tomorrow morning and their approach could keep USD soft in the interim.
Canadian Dollar
Signs that production cuts by members of the Organisation of the Petroleum Exporting Countries (OPEC) were beginning to lessen the supply in the oil markets pushed crude prices higher yesterday. The Canadian Dollar posted strong advances as Brent rose 1.6% and WTI advanced 2% on the news.
Canada’s December retail sales figures will be released just after the turn of midnight tomorrow.
New Zealand Dollar
Dairy prices slumped at the latest auction, ending a fledgling recovery before it got off the ground. A -3.2% decline took the average winning price at the Global Dairy Trade event down to US$3,474 per metric tonne. Dairy prices have performed poorly in the last five auctions, posting meagre gains twice and declining sharply on two occasions, including the latest event. The latest drop unfortunately coincided with the release of NZIER’s new report, entitled ‘Dairy trade’s economic contribution to New Zealand’, which highlighted how important the sector was to domestic growth.
New Zealand card spending data for January is set for release today. A strong figure could help soften the negative impact on the ‘Kiwi’ from weakening dairy prices.
Data Released
February 22nd 08.30 AUD RBA’s Lowe Speech in Sydney
February 22nd 13.00 NZD Credit Card Spending (YoY) (JAN)
February 22nd 20.30 GBP Gross Domestic Product (YoY) (4Q P) 2.2%
February 22nd 21.00 EUR Eurozone Consumer Price Index (MoM) (JAN) 1.8%
February 23rd 00.30 CAD Retail Sales (MoM) (DEC) 3.1%
February 23rd 06.00 USD FOMC Meeting Minutes (FEB 01)