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July 2017

Weekly Currency Insights from Halo Financial

Published: Tuesday 15 August 2017

What to watch out for this week…
  • Eurozone still needs economic boost
  • Key Canadian data expected
  • New Zealand at the mercy of China’s success – or failure…
By Rachael Kinsella
Eurozone still needs economic boost

The rumour mill continues to focus on the European Central Bank (ECB) and the potential unwinding of some of their Quantitative Easing. This could have the potential to affect the strength of the Euro, which has been strengthening against the US Dollar and Sterling recently.

The ECB’s chief economist has warned, however, that there are not likely to be interest rate hikes for the Eurozone any time soon, as he believes that inflation in the bloc will take time to come down to desired levels and the Eurozone still needs economic stimulus.

Key Canadian data expected

We expect data from US neighbours, Canada this week, although we anticipate that the Bank of Canada will keep their interest rate the same. The report that the Canadian central bank releases at the same time as their interest rate decision is an important economic indicator, however, and will be watched closely by the markets. As a commodity currency, volatility in the commodities markets and strained US-Canada relationship could take its toll on Canadian exports to the US – a key market for Canada and an important source of growth – and in turn, could affect the Canadian Dollar. 
New Zealand at the mercy of China’s success – or failure…

New Zealand is heavily influenced economically by the strength of the Chinese and Australian economies, including Australian imports of New Zealand products. China is Australia’s largest export market, so their economic fortunes and currencies are inextricably linked. That, in turn affects any wider export and import market trends in the Antipodes.

Gross Domestic Product (GDP) growth for New Zealand has slowed to 0.5% per quarter, which remains around average levels for the last five years. The New Zealand unemployment rate has fallen, boding well for the economy at 4.9%. NZ inflation sits at 2.2%, hovering around target levels most of the central banks are aiming for, so overall, the outlook is good for New Zealand and its currency, although it does leave the central bank, the Reserve Bank of New Zealand (RBNZ) with a tricky question: whether it is best to keep interest rates on hold for now to further boost the economy – potentially weakening the NZ Dollar and boosting exports –  or to increase them as a pre-emptive attack on any inflationary growth? It is likely that, in the current climate, rates will remain unchanged for the time being. 

Read more in our New Zealand Dollar Report
What you may have missed last week…

The Pound weakens against the Euro

The Pound fell against the Euro on Friday, and while there was no one reason for the drop in this currency pairing, speculation about the next interest rate move from the Bank of England (BoE), disappointing economic data for the UK and the ongoing Brexit negotiations are bound to have been contributing factors. However, Sterling remains oversold in technical terms, so there may yet be some semblance of a recovery for the Pound.

David Johnson, Director at Halo Financial, commented: “Sterling continues to occupy the complicated space between mixed UK data and the ominous concern over the Brexit negotiations. However, the UK data has certainly not been as dire as the naysayers would have us believe and there is still plenty of commerce happening. A 54.3 reading for the latest Manufacturing Purchasing Manager’s Index (PMI) is still comfortably into positive ‘growth’ territory. As long as that persists, Sterling will continue to tread water...”

Euro strengthens on sound economic results

Industrial production data for France and Germany last week posted better than expected results and has helped the Euro to remain strong against its key currency pairings. This comes despite rumblings of possible European Central Bank action to cut their quantitative easing and concerns about the continued need for European economic stimulus.

Sterling also struggling against US Dollar

Sterling fell against the US Dollar at the end of last week, in answer largely to UK politics and ongoing uncertainty. However, the fortunes of the US Dollar are tied to the all-important speech from Federal Reserve Chair, Janet Yellen, and the release of the Federal Reserve’s Beige Book – an important US economic indicator – this week, and markets will be watching closely.

Disappointing data for the US fails to move markets

The fall against the US Dollar was perhaps surprising in light of disappointing US economic data, with lower jobs figures for the month of June. Also surprisingly, the eagerly awaited US Federal Open Market Committee (FOMC) Minutes did not make any splash in the markets. The US Dollar and Canadian Dollar remain strong, but for how long is anyone’s guess. They raised the policy rate to a target range of 1-1.25%, and the minutes of this key meeting showed differing sentiment around the timings of and requirement for interest rate increases, US economic strength and rates of inflation.

It’s all turned upside down, down under…

The Reserve Bank of Australia (RBA) kept interest rates the same last week. Even though Australian Retail Sales data was better than expected, the Australian Dollar still weakened slightly.

Australia’s trade surplus has increased to AUD 2.47b in May 2017, a significant increase from the previous figure of AUD 0.09b and coming in higher than the forecast AUD 1.11b. The Australian Dollar, usually one of the strongest currencies in recent months, is now taking a turn downward..

Coffee a day

I rather liked Matt Chorley’s opening remarks in The Times Red Box column, following the study in today’s news claiming that those of us who drink three cups of coffee a day are likely to live longer than those who don’t: “Keep downing the espressos and you might live to see the day that we stop talking about Brexit.”
We can but hope. I can see the queue outside the local coffee shop from here…

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