Despite the release of weaker than expected retail sales data from Australia this week, the Australian dollar has performed reasonably well, making gains on a number of crosses. The currency has been supported by continuing solid iron ore, coal prices and the rally in gold over the last few days. Looking out to next week should see the AUD remain well bid but with the overhang of the potential credit downgrade from AAA status, extended AUD strength will be hard to sustain. Employment data on Thursday will be main focus in terms of economic releases.
There has been little in the way of key economic data released from New Zealand this week. Even so the NZD has enjoyed a strong performance on the back of broad based US Dollar weakness. In this environment the NZD is outperforming most other currencies. This should not be a surprise as the NZ economy is fundamentally strong. Little on the NZ political front to exert any market influence, as new Prime Minister English is away in Europe however any news on the potential timing for a free trade agreement with the Eurozone would be seen as New Zealand dollar supportive. Next week we have another dairy auction to draw focus.
This market continues to be influenced by the lead up to next week’s Presidential inauguration and comments/tweets by the President-elect. With yesterday’s press conference providing little clarity on the direction ahead for US policy, US treasury yields continued lower, but with Fed members underlining rate hike expectations (albeit mixed between 2-3 0.25% hikes this year), there is a limit to just how low yields can go. For this reason we are looking for the USD to remain supported on dips. There were a number of Fed speakers overnight who unanimously agreed economic performance has improved, but there was no consensus on the number of hikes in 2017. In addition, St. Louis Fed President Bullard commented that the 5-6% run up in the US dollar since the election may be putting the cart ahead of the horse. He also stated that any impact of Trump administration's policies likely not felt until at least 2018 In further comments he said Fed policy rate can remain 'fairly low' as inflation is unlikely to surge next year. He added that properly designed fiscal, tax and regulatory policies by the new administration could push up productivity and thus potential growth.
The exit from the Euro-zone continues to feature heavily as an influence on UK markets. Hard Brexit" worries have – and we believe will continue - to weigh on the GBP's near-term prospects, even if yesterday's remarks from BoE Gov. Carney highlight the fact that the post-referendum environment has not produced the sort of negative economic shocks that had been feared," there remain broader fundamental risks as the Brexit process unfolds with the potential to depress confidence, increase uncertainty and undermine already weak investment intensions.” The ruling of the Supreme Court on the Brexit case could be issued any day now and there is growing speculation that the court will affirm the need to obtain parliamentary approval before triggering Article 50. Next week’s key event will be a speech from PM May on Tuesday where she is set to outline her plans for Britain’s exit from the EU.
The common currency received some additional support from local data, as German released its final 2016 GDP figure, showing that the country grew by 1.9% in 2016, from 1.7 in 2016. Also, the EU Industrial Production figures beat expectations in November, up by 1.5% in the month. The annual growth rate reached 3.2%, the strongest since 2011. The overnight comments by the German Finance minister are interesting and again show there is still a considerable divergence of views among Euro-zone members…German officials have warned the ECB risks fuelling support for euro-sceptic parties if it does not change course soon.