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December 2015

Weekly Currency Insight

Published: Friday 11 December 2015

  • BOE on hold – as is Sterling
  • NZ confidence data mixed
  • US retail sales awaited for Fed clues. 
There was a whole heap of minor data released on Thursday but the biggie was the Bank of England's interest rate decision. Hands up if you were surprised to hear the BoE left both the base rate and QE budgets on hold. Anybody............anyone........Bueller? I guessed as much. No one was surprised in the financial markets either but the BoE meeting minutes did show the Monetary Policy Committee was concerned about the depressed state of the oil market and a slowdown in wages growth and they are clearly in no hurry to raise the cost of borrowing in the UK. Sterling reacted by ...well...by not reacting really. The UK data diary for Friday is as empty as a political promise, so Sterling may well ease into the weekend with a whimper rather than a roar.
 
Overnight news from New Zealand showed business confidence; as shown by the Purchasing Managers Index, rose slightly in November. Two elements of that index; the new orders and the employment sectors were both at the highest since June. We also heard that consumer confidence fell a little. That kind of counterbalanced the business data, so the NZ Dollar stayed in tight ranges.
 
The rest of today was lacking major data apart from the US retail sales figures. This is one of the factors that may be weighing on the Federal Reserve's apparent willingness to raise the US base rate. There has been a distinct lack of momentum in retail activity but the forecasts were for an improvement in the core data but both the headline and core data were lagging the estimates of analysts and forecasters. That may cause reasons to delay the expected US interest rate rise next week. The Sterling – US Dollar rate which got as low as 1.48 last week, ran out of steam at 1.52 and looks like it may slip again even if it does hit the range top at 1.5250 briefly.
 
The sacking of South Africa's Finance Minister on the 10th December caused a sudden drop in the value of the South African Rand. It hit new all-time highs against the Pound and other currencies and has continued to weaken this morning. There is a concern that higher US interest rates will strengthen the US Dollar and that will weaken the commodity markets – markets that South Africa is reliant upon for export income. For those who need to buy Rand, I can honestly say, you've never had it so good.
 
Have a great weekend everyone and just remember, there are only 13 sleeps until Christmas.
 
 

Major check up


A guy is feeling under the weather so he goes to the Doctor and asks for a complete physical examination. He is there for hours and after the Doc checks all the test results he asks the chap to come back into the Surgery.
"I am afraid I have some very bad news," says the Doctor. "You are dying and you don't have much time left."
"Strewth," says the patient. "Exactly how much time to I have left?"
"Ten," says the Doctor
"Ten what? Ten days, ten weeks, ten months? What?" says the guy with clear panic in his voice.
The Doctor looks at his watch and says, "Nine....."
 

 AUD


The reserve Bank of Australia has a lot of thinking to do. They are mulling whether to cut the base rate in Australia again in order to stimulate the economy. Commodity exports are still producing dwindling results and Australia's major export market, China is posting increasingly poor data. As things stand, the Sterling – Aussie Dollar exchange rate has bounced from the A$2.03 low we saw on 3rd December and we tested A$2.12 briefly earlier today. The 50% recovery of the fall from August's high of A$2.23 to December's low of A$2.03 is A$2.13. That would seem to be the obvious target in the short term.



 

CAD


A slump in oil prices and apparent resistance to any measures to assuage that relentless fall is contributing to significant weakness in the Canadian Dollar. We saw the Sterling – Canadian Dollar rate fall to C$1.98 on 3rd December but the market tested C$2.0875 earlier today. These are levels we haven't seen since august when this pair topped out just shy of C$2.10. These are the highest levels this pair has seen since 2007 and a break above C$2.10 would see traders aiming at the trend line resistance of C$2.15 and C$2.17. Those planning to move to Canada or import from Canada may get that early Christmas present they so deserve.


 

EUR

 
Sterling had a rough week last week whilst the Euro benefitted from the delayed implementation of more substantial interest rate cuts and larger scale quantitative easing by the European Central Bank. This week's data has not been sufficiently strong to get the blood cursing through the veins of the Pound, so we have seen a pretty lacklustre performance by Sterling. As things stand, the Sterling – Euro rate is poised at €1.3850; a rate that has proven to be pivotal throughout the year. In spite of the fact that the ECB may have to produce much stronger policies to turn the Eurozone economy around, we may still see a dip to €1.35 in this pair before we see further gains. If, however, the market pushes higher from here, November's high of €1.43 beckons.



 
 

NZD

 
Unlike its antipodean cousin, New Zealand's Dollar is holding up very well. The higher yielding interest rate makes the Kiwi Dollar attractive to overseas investors and that certainly strengthens it. On the other side of the equation, Sterling has had a rough couple of weeks and that has left the Sterling – New Zealand Dollar rate meandering around the bottom of its recent ranges. The current NZ$2.25 seems a world away from the heady heights of 2.45 and 2.50 we saw in August and September. Beware though, if you need to buy NZD, this pair could easily make it to NZ$2.15 and still be within the current downward trend.


 

USD

 
The Federal Reserve is widely expected to fire the starting pistol on interest rate hikes next week. However, recent mixed US data has made a few commentators question whether the Fed could just pause for another month before making the big change of direction. The current trading range for the Sterling – US Dollar rate is $1.4850 to $1.5250but this is a declining trading range. Hence we are likely to see lower levels in the months ahead; especially if the Fed raises the base rate by more than a few basis points.