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Australian Dollar leads the way

Published: Thursday 19 April 2018

  • Canadian Dollar recovers from overnight pressure
  • Sterling suffers from poor inflation and retail sales figures
​​By Killian Greenwood

Commodity currencies are trading broadly higher today, led by Australian Dollar. A strong rebound in the Chinese stock markets is one of the big factors that helped the Australian Dollar gather strength. The Aussie was not adversely affected by the weaker than expected headline job data from Australia; 4.9k jobs were added in March, below expectations of 20.3k. Full time jobs dropped by 19.9k to 8.51m, while part time jobs rose 24.8k to 3.9m. Last month’s figure was revised down from 17.5k to -6.3k. February 2018 has now had the first monthly drop in Australian employment since September 2016.

Australia’s quarterly National Australia Bank (NAB) business confidence result was unchanged at 7 in Quarter 1. Quarterly business conditions rose from 15 to 17. In the release, NAB noted that quarterly business conditions were at their highest levels since 2007, even though the monthly survey data eased later in the quarter. Business confidence in Australia has been relatively stable since Q3 2016, staying within a range of 6 to 8, and was a little above the historical average of 5. While there is no upward wage pressure, the conditions are in place due to tightening labour market.

Regarding Reserve Bank of Australia (RBA) monetary policy, NAB noted that businesses are pricing in around an 80% chance of an interest rate hike within 12 months. The RBA itself noted that “RBA will want clear evidence that wages growth and inflation are moving higher before removing some policy accommodation, and we don’t expect sufficient evidence of this until late 2018″. NAB expects RBA to have the first rate hike in November 2018, “with the risk that it occurs later”.

Canadian Dollar recovers from overnight pressure

The Canadian Dollar suffered some selling pressure overnight, but has recovered this morning. The Bank of Canada sent a mixed message with yesterday’s statement. Although the next rate adjustment remains an interest rate hike, the timing remains dependent on data and hinged on a number of uncertainties, including North American Free Trade Agreement (NAFTA) negotiations and geopolitical tensions, something critical to Canada, due to its position as an oil exporter. Policymakers upgraded their assessment of the global economic outlook and remained optimistic over domestic developments. However, they revised their forecast of Gross Domestic Product (GDP) growth lower this year. The market is pricing in a 34% chance of an interest rate hike in May 2018. The next expected hike is set to come in June.

Sterling suffers from poor inflation and retail sales figures

Sterling has lost some ground over the last few trading sessions on disappointing data and weaker than expected inflation. The Pound, which had been the best performing currency last week, is now under further pressure after disappointing retail sales data, released this morning, where the quarterly figure fell by 0.5% and the month-on-month growth rate fell by 1.2%. Adverse weather conditions affected travel in March 2018, which had a knock on effect on sales of petrol, posting a drop of 7.4%. However, the bad weather also helped boost online sales. Traders initially priced in an interest rate hike at the 10th May meeting, but may have to reassess if yet more economic releases point to a downturn in the UK economy.

The main focus this morning is on UK Retail Sales, while this afternoon’s session will be focused on US Jobless Claims.
#ThursdayThoughts – Let the sun shine!
“Keep your face to the sunshine and you cannot see the shadow.” Helen Keller
“Keep your face always toward the sunshine - and shadows will fall behind you.” Walt Whitman
“I have nothing to ask but that you would remove to the other side, that you may not, by intercepting the sunshine, take from me what you cannot give.” Diogenes

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 09:00 EU: Current Account 37.6b 32.3b
GBP 09:30 UK: Retail Sales 0.8% -0.5%
USD 13:30 US: Philly Fed Manufacturing Index 22.3 20.8
USD 13:30 US: Unemployment Claims 233k 230k
USD 15:00 US: Conference Board Leading Index 0.6% 0.3%

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