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September

Stronger Sterling hanging on…

Published: Friday 14 September 2018

  • Anti-climax for Australian Dollar
  • New Zealand’s economic wellbeing under scrutiny
  • Chinese and Japanese data also dominate
  • US Dollar under pressure
Sterling strengthened against all its key currency counterparts in recent days on some positive comments from EU chief negotiator, Michel Barnier, about possibilities for a Brexit deal, and unexpectedly robust economic performance results. It’s hanging on to a better position, too. However, any tantalising hints of negativity from the negotiations and the current sensitive status of the UK government mean the Pound is in a very vulnerable position, particularly when there is a data void. Comments from the Bank of England have also tended towards the gloomy side, and this, too, affects the power of the Pound. It will be interesting to see what effects the next Bank of England announcements have on Sterling strength.

Although the Pound has made progress, it’s still at a lower rate than many would like to see. Markets, investors, politicians… everyone is waiting to see what happens next. As usual. C’est la vie…?

Anti-climax for Australian Dollar

The big news this week has been the Australian Dollar’s fall from grace and then boomerang-like bounce back. The AUD fell on collapsing consumer confidence (at its lowest for almost two years) and recent political upheaval, all meaning that Australia’s central bank, the Reserve Bank of Australia (RBA), is not in a position to raise interest rates. This cautious monetary policy and outlook has been keeping the Australian Dollar lower than it usual bouncy self.

However, the news that the US and China are to start up trade talks again provided a welcome lift for the Australian Dollar, with Australia so closely tied to China in terms of trading relationships. With this news coming out at the same time as very positive Australian employment results – which reached a whopping 44k, in contrast to the forecast 18.4k – the Australian Dollar got a significant boost.

New Zealand’s economic wellbeing under scrutiny

Near neighbours, New Zealand, have also had economic worries recently, which, combined with the positive Brexit murmurs, led the way for the New Zealand Dollar to fall significantly against the Pound. A bill has also been passed to ban foreigners from owning existing New Zealand properties. The longer-term effects of this move are yet to be seen, but the Kiwi government hopes it will encourage domestic home ownership and balance what has been an embattled housing market.

Chinese and Japanese data also dominate

China’s strong economic performance put the pressure on the US Dollar, increasing trade tariff worries and also helping to boost the Japanese Yen, which itself picked up on strong Japanese economic data, coming in above forecasts.
 
New British one pound sterling coin up

US Dollar under pressure

Online antics from the US president, coupled with crude oil prices, all playing out against the backdrop of continued trade war fears, have finally taken a bite out of the US Dollar. Having weakened, we await the latest employment data from the US. Unemployment is expected to have fallen even more dramatically, which could serve to strengthen the USD. Other positive economic updates could also provide the US Dollar with more traction against its major currency partners, particularly the perilously positioned Pound.

Canada faces own trials and tribulations

In contrast, neighbouring Canada expects their unemployment rate to have risen, albeit only slightly. They are also expecting an improvement on housing data. Economic performance indicators between the US and Canada are closely linked in a number of ways, but Canada has had its own set of troubles recently, given the ongoing North America Free Trade Agreement (NAFTA) talks, oil prices and economic concerns.

What to watch out for next week

Next week brings a whole host of UK Price Indices, including the housing market, producer, consumer and retail prices, retail sales data, and more. Positive results here could give the Pound a helping hand while Brexit discussions continue.

There will be a raft of data from the US once more and plenty of data releases across Asia Pacific, including key figures from Japan, Australia and New Zealand.

This all takes place alongside trade balance, current account and industrial data for the Eurozone.

There will certainly be ups and downs in the currency markets next week, with a barrage of results and releases, combined with continuing critical geopolitical drivers. Keep a close watch and contact your Currency Consultant for guidance.

#FridayThoughts

Read our Currency Consultants’ latest thoughts on all the key currency pairings and the latest economic and political happenings.

You can catch up with their musings in the media, too.