The Australian Dollar (AUD) has largely been range bound over the week against the major pairs lacking any real direction. The US FOMC rate meeting Thursday morning saw the Australian Dollar move north against the US Dollar (USD) coming off a 3 month low of 0.7660 through to 0.7760 on a surging Dollar (USD). At the latest RBA meeting minutes the Reserve Bank of Australia said they are concerned about high household debt and less than favourable wage growth. The RBA are likely to keep interest rates on hold for some time in an effort to lower unemployment and lift inflation. Aussie (AUD) unemployment figures Thursday came in benign at 5.5% based on expectations of 5.6% with 17,500 people adding to the workforce over the month of February. Still, underemployment remains key for RBA policy makers heading into the next few months.
The RBNZ left rates unchanged as expected at 1.75%. It was the last announcement for Acting Governor Grant Spencer as his term ends on the 26th of March. Governor Adrian Orr begins on 27th March. Comments from the RBNZ meeting included; Monetary Policy will remain accommodative for a considerable time, long term inflation expectations will be fairly anchored at 2%, house price inflation remains moderate with weak house price sales, CPI inflation is expected to weaken in the near term due to soft energy and food prices. The Fed Rate stole the show earlier in the morning with a hike from 1.5% to 1.75% as Powell was generally “neutral in his speech but hinted at more hawkishness at a later date. The New Zealand Dollar (NZD) pushed off its low of 0.7150 on the Fed rate announcement to 0.7235 and stood its ground on the RBNZ announcement happy to stick around 0.7230. In other news dairy prices fall 1.2% at the recent global dairy auction dropping to USD 3,632.00 per tonne across all products. Markets were expecting another drop lower by 0.6% but the figure is the 3rd consecutive fall after 3 positive auctions earlier in the year.
The US Dollar (USD) fall sharply Thursday on the Fed Rate announcement. The benchmark rate was hiked from 1.5% to 1.75% as was widely expected. The Fed chairman Powell highlighted that policy will need to be tightened further gradually through 2020 as the economy goes through a growth period with inflation nearing 2.0%. With consistent strength in the labour market through 2018 the forecasted unemployment figures have been revised down to 3.8% at the end of 2018 and 3.6% at the end 2019 from an expected 3.9%. Based on these projections the wash up is a more aggressive tightening plan in the coming FOMC meetings based on an additional three hikes of 0.25% in 2018, three hikes of 0.25% in 2019 and two hikes of 0.25% in the 2020 year. If inflation surprises to the upside the Federal Reserve may need to be more aggressive. Crude oil inventories have declined again with supplies falling to 2.6M barrels for the week ending 16 March. US Core durable goods orders print Friday with expectations of -.3% for the month of March.
The Bank of England (BoE) Monetary Policy Committee voted 7-2 in favour to hold rates at the current 0.5% overnight. The BoE said the decision to leave the EU is having the most significant outlook on a building economy. Inflation will return to the 2% target over the next 3 years. The British Pound (GBP) traded higher against a basket of currencies with stronger than expected data. UK unemployment fell back to 4.3%, the lowest level since 1975, and wages grew by 2.8% – much quicker than predicted. With 32.2M people working during the 3 months ending in January this was 168,000 more than the previous quarter and 402,000 more than at the same time in 2016. Retail Sales also gave the Pound further energy with 0.4% expected after the number came in at 0.8%. This positive information should almost guarantee the Bank of England (BOE) will raise rates in May. The Pound (GBP) pushed up from 1.4000 midweek against the greenback to trade as high as 1.4220 before dropping back to 1.4120 in heavy traded markets.
The EURO (EUR) has had a topsy-turvy ride over the week after a slew of data has been released this week throwing the currency to all corners. Soft EU data pushed the pair off its 1.2390 high Thursday, the German Markit Composite Output index printed at 55.4 down from 57.6 in February its lowest in 8 months. Business climate eased to 114.7 from 115.4 previously. US Data showed a negative bias with unemployment claims up to 229k to the week of March 16. The Fed raised the benchmark cash rate from 1.5% to 1.75% the market pushing the EURO (EUR) to 1.2380 on the news, while indicating another two in 2018. European Central Bank President Draghi spoke at a summit Thursday and said the European economy was expanding with unchanged momentum based on consumption. Investment including housing was growing at a rate not seen since the 2008 financial market crash. He went on to say increasing government spending even as growth improved was a risk to the economy. Next week we see Spanish CPI figures along with German Unemployment.
The Japanese Yen (JPY), US Dollar (USD) posted losses trading down to key support of 105.20 during a busy week of volatility. The pair sits plumb on the yearly low and a levels last traded at in November 2016. Japan’s Manufacturing data published down on expectations printing at 53.2 after 54.3 was expected. A break lower could imply a rapid decline for the USDJPY through to 100.00. With the US raising interest rates now in full swing we sense this may not be enough to reverse the decline as Japan still has a lot of work to do to be able to get back to the 2% elusive inflation target. In a survey held recently three quarters of Japanese businesses don’t believe the BoJ will be in a position to tighten policy until 2019 or 2020. Japanese Retail Sales and Unemployment figures print next week.
The Canadian Dollar has reversed last week’s losses over the week against the greenback pushing the pair back lower to 1.2850 on Fed news. The US Dollar (USD) has taken hits after the FED raised rates from 1.5% to 1.75% driving the pair significantly bearish. The Canadian Dollar enjoyed a nice rise in oil prices, oil inventories saw a drawdown and pushed prices up over 65.00 per barrel. NAFTA Talks have also beneficiated the Canadian Dollar (CAD) after the US removed its order for having at least 50% of every vehicle assembled in Canada or Mexico dropped. Encouraging signs for a NAFTA agreement after the Trump government exempted Canada and Mexico from its 25% tariff on imported steel and aluminum earlier.