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December 2015

Daily Currency Insight

Published: Monday 07 December 2015

 
  • GBP awaits BOE
  • RBNZ expected to cut rates
  • Aussie unemployment forecast to rise
     
I love the brevity and the certainty of the comment made by one witness to the knife attack in Leytonstone. As the police subdued the attempted murderer who apparently shouted, "This is for Syria" as he lashed out, one guy was heard to shout, "You ain't no muslim bruv". And there you have it; the truth of the situation in one succinct, grammatically flawed statement. Politicians could learn a thing or two from this guy.
 
In the world of finance, the European Central Bank was in the headlines last week after they only partly fulfilled the market expectation of looser monetary policy and more expense for banks who deposit funds with the ECB.  Almost nobody believes the ECB has done enough and the markets are preparing for further loosening from them. So, whilst the Euro strengthened initially, there is plenty of scope for further euro weakness in the days, weeks and months ahead. This week started with poorer than expected German industrial production. No doubt the VW factor is having an impact. However, this isn't a big week for EU data and we are likely to see the euro wafted around by the US and UK data.
 
Sterling did take a hit last week but this is a big week for UK data. Not least of which are the Bank of England's interest rate and QE announcements on Thursday. We are not expecting any change in either measure but the minutes of the meeting will give clues on how near the BOE is to making its first interest rate hike. Before we get to that, the BOE will have had industrial and retail data to mull. Sterling was probably oversold last week so there is room for some strength to come back in as the week progresses. We should see the Sterling – Euro rate test €1.40 at the very least.
 
We will get a fair amount of data from Australasia this week as well. From New Zealand we will get manufacturing activity data tonight, retail data on Wednesday, consumer credit data on Thursday and consumer confidence data into Friday morning. The Sterling - NZ Dollar rate is starting the week around the lowest levels we have seen since June and it doesn't look particularly oversold. There could be more downside to this rate before we see any kind of bounce but that does clearly depend on the week's events. The most significant is the interest rate decision from the Reserve Bank of New Zealand late on Wednesday (UK time). A 25 basis point interest rate cut is widely forecast and therefore, probably largely factored into the price of the NZD. Anything more than that or strong hints of further cuts will weaken the NZD but if the EBNZ stays its collective hand, a brief foray to lower levels in the GBP-NZD rate will be on the cards. NZD sellers may want to place automated orders in preparation for that potential short term opportunity. 
 
By way of contrast, the Australian Dollar starts the week on the back foot. Construction sector data showed the growth in the sector slowed last month although it is still just about in positive territory. The GBP-AUD rate was significantly oversold at the end of last week but we have seen a bounce from that 2.03 low back to 2.06 this morning. I suspect we will see further AUD weakness as long as the consumer and business confidence indices are in line with the forecasts. That weakness would be further exacerbated by a rise in the unemployment rate to 6.0% and that too is widely expected.
 
And can I just take a moment to acknowledge the new President of Malawi. Joyce Banda has come into office following the death of her predecessor and has set about trying to transform Malawi's fortunes with acts like selling the presidential jet and a fleet of 60 Mercedes in order to return funds to the country's economy and to save £220,000 per year in running costs just for the jet. She has devalued the Malawian currency by 30% on the advice of the IMF and has attracted increased international aid to assist her in her reforms. Goodness me, an African leader with the peoples' interests at heart! She could make a name for herself.
 
Cause and effect
 
Three guys are sitting in a beach bar in Jamaica. All have been there a few days. They don't know each other yet but have moved beyond the nodding and saying good morning stage. They strike up a conversation over cocktails. The conversation turns to how each of them came to be retired in Jamaica.
 
The first guy says, "I ran a large home repair and DIY store near Manchester, England. Then one day the place caught fire and the insurance pay out was such that I could afford to retire and move here".
 
The second guy says, "I had a very successful jewellery wholesale business. Then we came in one Monday and the place had been ransacked; everything gone. The insurance pay out was substantial and I managed to retire on it."
 
The third guy says, "I ran a fishing business on the West Coast of America until one day a tropical storm and hurricane swept everything away; smashed all the boats onto dry land. The insurers took a while to pay out but they finally did and here I am."
 
The first guy says, "How the hell did you organise a hurricane?"