FX News

US Dollar weakness takes crosses off lows

Equity markets traded in the red most of last week with markets remaining risk averse. Friday saw a more relaxed approach to geopolitical tensions with currency market with equities starting to post gains. US Dollar support faded as the week came to a close, the New Zealand Dollar finished up the strongest of the majors group finishing at 0.6640.  Chinese officials have received an invite from the the US to talk about trade later this month. China have confirmed they will attend a delegation led by Vice Commerce Minister Wang Shouwen to travel to America this week. Remember the next round of trade tariffs on 16 Billion worth of Chinese products kick off on the 23rd of August, China will clearly be trying to avoid this. The Turkey and Qatar central banks have signed a currency deal Friday to make sure liquidity and financial support is ongoing for the Turkish Lira. This comes after Qatar has already pledged an economic package of investment. German bank Bundersbank has come out and said the (ECB) European Central Bank is on course to reduce its current stimulus. Bundersbank also said the Turkey issues will have limited impact on German banks citing that Turkey was 16th on the list of German trading partners. In Brexit news via UK press we hear that EU migrants will be given the right to stay in the event of no-deal Brexit with fears of labour shortages. Britain will agree to enable migrants to live in the UK and continue to access the NHS to claim benefits. A no deal will rely heavily on the availability of existing labour with the event of further talks breaking down. This week we have a relatively light economic calendar, Jackson Hole Symposium in Wyoming starts Friday and could throw up its normal snippets of controversy and volatility if drama eventuates.

Australia

The Australian Dollar shrugged off last week’s employment data which showed a net loss of jobs added to the labour market after markets were expecting a healthy increase. With the unemployment rate coming in lower than the expected 5.4% at 5.3%- the lowest level in 6 years this seemed to mollify fallout in the aftermath of the data. The news of China’s delegation travelling to the US this week to resolve trade disputes, and broad based profit taking on US Dollar longs, have been enough to inspire an Aussie recovery to 0.7300 against the greenback. RBA’s governor Lowe said he expected rates to remain on hold for some time to stimulate the economy, and the AUD and assist the recovery. The RBA minutes release today to watch with Jackson Hole Symposium Friday.

New Zealand

The New Zealand Dollar has traded its way to the strongest performer over the past week. From the low of 0.6540 it has pushed off its lows and after risk markets returned to normality Friday driving it to 0.6640 against the US Dollar. The ANZ bank have weighed in on monetary policy saying they expect the Reserve Bank will consider a cut to rates instead of a rise as the next move, citing global risks and offshore funding costs. A drop in mortgage rates may have an impact of house values as they have done in the past when rates fall but the large unknown is how the “foreign buyers ban” will affect the housing market long term. A negative impact on house values could be significant if mortgage rates rise in 2020. Retail Sales Wednesday is the most important news for the week locally expected to print up on last month’s 0.1%

United States

Risk markets returned to the table late last week with USD bears keeping the demand for the US Dollar subdued. The only currency performing worse than the greenback as the British Pound. The US Dollar Index fall from 96.98 early in the week to trade Monday at 96.16 showing its overbought status. The surge in high yielding assets such as equities and commodities was largely based on solid earnings on wall street leading to the DJIA closing at its highest level since February. Michigan Consumer Sentiment was also down on expectations printing at 95.3 from the previous 97.9 and missing the mark of 98.1. Markets are expecting a 93.6% probability that the Fed will hike rates on September 27th and a 61.3% of hiking in December 2018. FOMC member Bostic will speak this week as well as Fed chair Powell at the Jackson Hole Symposium in Wyoming. Expect firework if Trump’s agenda with trade takes a turn.

United Kingdom

With both Retail Sales figures surprising to the upside and unemployment data also surprising it seems a fairly solid week for the British Pound. Although the Pound has been well supported last week and pushing higher to 1.2790 today we still see a market evidenced by risk fear. We think the Pound should be trading a lot higher at least post 1.3000 against the US Dollar. But its not – and this is because of a heightened risk of a no-brexit deal, EU geopolitical uncertainties and Trump trade concerns. All seem to be holding the Pound back one way or another. We suspect the strength in the Pound will go through the roof once important issues with brexit are sorted. We see no real solid coming out of media to suggest a no deal brexit would eventuate instead political games and jostling. Watch for further brexit speak over the following week with UK-EU talks resuming. The Pound has a quiet week ahead for fundamental news so movement will be based on offshore developments.

Europe

Eurozone final yearly CPI printed bang on expectations of 2.1% for the year ending in July 2018 up from 2.0% from the previous year. The lowest annual rates were in Greece with 0.8% Denmark 0.9% and Ireland at 1.0% with the highest recorded figures coming out of Bulgaria at 3.3% and Romania at 4.3%. The Euro continued its midweek rise from 1.1300 against the greenback travelling to 1.1470 at the weekly close. A nice push higher as US bears also bid the currency higher as risk returned. Contagion risk out of Turkey has also given the Euro an upgrade with the situation being defused for the moment. Looking ahead this week we have a slew of French and German manufacturing data to publish Thursday with most of the worlds finance and central bank folk attending the yearly Jackson Hole Symposium in Wyoming, USA.

Japan

Japanese exports to America have diminished over the past year plunging 5.2% in July from the year earlier. Shipments of cars have slumped by 12.00% – This comes even before Trump’s 25% on all auto imports comes into play. Japan’s Nikkei traded higher erasing losses on Thursday as news of coming talks between China and the United States at the end of this month. Hopes of easing the prospects of a trade war bought improved risk to currency markets and sending the Japanese Yen lower, closing at 110.50. Drivers of the Yen this week will come from market sentiment with plenty of uncertainty on the table and a lack of local Yen based economic data.

Canada

Canadian CPI released considerably higher than the expected number of 0.1% rising to 0.5% Friday boosting the Canadian Dollar across the board. Against the US Dollar it has rallied to 1.3060 from 1.3160 fuelling CAD demand into the weekly close. Inflation has risen to its highest level since 2011 with tourism and gasoline pushing the rate to 3%. This figure was up year on year from the 2.5% seen for the June quarter. Officials in Canada and Mexico are still hopeful president Trump will extend his flexibility shown to the EU regarding trade issues, will extend through to NAFTA as well. NAFTA is the key component of the Canadian economy with 80% if the country’s exports going to the US. Delays with reaching an agreement has weighed on the CAD, once this is sorted we should expect the Canadian Dollar to strengthen accordingly. Monthly Core Retail Sales prints Thursday and should print well, in line with last month’s improvement of 1.4%

Major Announcements (Tuesday only)

  • UK Unemployment prints lower at 4.0% from 4.2%
  • US Retail Sales releases higher to 0.6% from 0.3% expectations boosting the US Dollar
  • Australian Unemployment prints lower to 5.3% from 5.4%
  • UK Retail Sales prints up at 0.7% from 0.2%
  • Canadian CPI shows an increase to 0.5% from 0.1% expected
  • Jackson Hole Symposium in Wyoming starts Friday
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