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April 2017

Weekly Currency Insights from Halo Financial

Published: Thursday 27 April 2017

What to look out for this week
  • The Euro is the one to watch
  • Sterling rally ebbs away on profit taking
  • US awaits Trump’s tax policy talk
  • Canadian Dollar in for a bumpy ride?
  • Australian inflation rising, AUD rises slightly
By David Johnson
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Keep an eye on the Euro…

The Euro is one to watch currently, as the elections in France play out, and we look ahead to more elections in Germany and potentially another in Italy. The Euro strengthened against the US Dollar as pro-EU Macron’s lead was announced and defeated candidates threw their support behind him. This was a good result for European policymakers, but there is likely to be considerable volatility ahead.
 
Sterling slips back again after surprise strength on election announcement

Sterling also slipped against the Euro, ending the UK currency’s rise and positive week following the UK’s general election announcement. It is odd to see a currency rally when an election is called; generally, such uncertainty would weaken the currency. So, having spiked to €1.20 and slipped back to €1.17, it is pretty clear that EUR buyers are happy to take advantage at or near €1.20. Yet, there could be more change afoot – the Euro will have its share of troubles in the coming weeks as member States run their own elections. It will also be interesting to see what effects, if any, the Chancellor of the Exchequer’s testimony to the Treasury Select Committee will have on Sterling.
 
The new President has seen two major failures in his ability to implement policy.
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US markets react to Trump’s tax policies

US markets were eagerly awaiting Donald Trump’s tax announcements and they were largely in line with the heavily leaked information. A proposed cut in corporate tax from 35% to 15% is the major headline. However, the rally in the Dow Jones indices and a small spike in the USD were short lived as reality sunk in. The new President has seen two major failures in his ability to implement policy, so no one is taking it for granted that these plans will roll out as designed.
 
Canadian Dollar in for a bumpy ride?

Close neighbours to the US, Canada, have received forecasts for disappointing retail sales data, so not much of note is expected in terms of the Canadian Dollar on that front. However, attention has now turned to Trump and the North American Free Trade Agreement (NAFTA) deal – with significant potential implications for the Canadian Dollar. The results of the renegotiations and planned 90-day consultation period are unknown, and this could cause considerable volatility for the Canadian Dollar and have knock on effects on a variety of industries and other currencies. As ever, the uncertainty creates volatility for the affected currencies and their major trading partners.

The Canadian Dollar weakened briefly against the US Dollar on the news, although there are likely to be a number of ups and downs on the road ahead. From a technical perspective, as far as the GBP-CAD rate is concerned, there is a lot of CAD buying interest at C$1.75. This level was a support line for the Pound through 2014 and 2015; and resistance in 2016. A break above here would open potential for 5 cents of GBP gains or more.
 
Australian inflation rises

Australia has seen inflation rise to 2.1%; higher than forecast and the first time it has reached above 2% for two and a half years. It provided only marginal upward movement for the Australian Dollar. There are not likely to be any further interest rate rises in Australia, so any economic effects are also muted.

What you may have missed last week
  • Sterling strong after election announced
  • US Dollar weakens following poor economic results
  • Canadian Dollar experiencing volatility
Good news for the Pound…

Last week was a good one for the Pound, as Sterling soared in response to Theresa May’s announcement of a UK general election, scheduled for 8th June, as well as continued positive economic figures for the UK giving Sterling a helping hand.
 
Bad news for the US Dollar…

In contrast, the US Dollar, did not have a good week. Poor retail data results, softening inflation and the shadow of potential tax reforms all weighed on the US Dollar’s strength. Lower consumer confidence may just tip the scales and weaken the US Dollar further. 
 
Continued volatility and economic concerns for Canada.
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Canadian Dollar struggled
 
Across the border, there was also continued volatility for Canada; and economic concerns and commodity prices are taking their toll on the Canadian Dollar.
 
The OPEC decision to bring down oil inventories will have implications for all commodity currencies, notably the US and Canadian Dollars, and this is likely to be reflected in the performance of the Australian and New Zealand Dollars, too.

The law of averages sets the tone for Australia and New Zealand
 
Economic data is also looking a bit hit and miss in the Antipodes. New Zealand and Australian consumer confidence levels slipped this month, although both are floating around average in terms of overall performance. The Australian Dollar has benefitted from very strong jobs data for March 2017, helped in part by Australia’s close export relationship with China.

For more information, infographics and the latest currency insights, visit www.halofinancial.com/news
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