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Heat is on for commodity currencies

Published: Tuesday 16 April 2019

  • Australian and New Zealand Dollars under central bank pressure 

  • Disappointing data for Canadian Dollar

  • Can the Pound and Euro make hay while the sun shines?

By Jonathan Russel, Currency Consultant

The heat is on for the commodity currencies after a raft of global economic data and central bank speeches. The Australian Dollar is the weakest currency currently, as the Reserve Bank of Australia (RBA) took another step towards laying the ground for an interest rate cut through their cautious tone and approach to monetary policy. The Australian central bank was clear about the possibility of dropping interest rates and seeing the need for it, given the current declining Australian economic conditions. 

Australian and New Zealand Dollars under central bank pressure 

The RBA said, “A lower level of interest rates could still be expected to support the economy through a depreciation of the exchange rate and via reducing required interest payments on borrowing, freeing up cash for other expenditure”. Also, they were open about the need to lower rates in a scenario where “inflation did not move any higher and unemployment trended up… a decrease in the cash rate would likely be appropriate in these circumstances.” The Australian Dollar took a tumble as a result and markets are now anticipating two interest rate cuts in 2019.

Across the Tasman Sea, the Reserve Bank of New Zealand (RBNZ) Governor, Adrian Orr, also had some words of caution and discussed their lean towards monetary easing. Much of this caution can be attributed to worldwide concerns about a global economic slowdown, evidenced through worsening economic conditions in the USA, China and Europe; all of which are having knock-on effects on their neighbour countries and currencies. 

Disappointing data for Canadian Dollar

In North America, another commodity currency has come under pressure. The Canadian Dollar fell overnight after poor results from the Bank of Canada’s (BoC) Business Outlook Survey, which also focused on global economic fears and pressure from policy changes in the neighbouring USA, which are hitting export sales and trade performance. Later today, Canada manufacturing sales and international securities transactions will be released and no doubt scrutinised closely by investors.

Federal Reserve flexible on inflation goals?

Following Trump’s Tweet, Federal Reserve Bank of Chicago President and CEO Charles Evans said on Monday that the Federal Reserve’s policy has been “successful” in achieving maximum employment. He also said they should show willingness to allow inflation to spill “modestly” over the 2% target “50% of the time”, setting alight new rumours that the Federal Reserve will put up interest rates again.

European markets have strong data results to contend with

The markets’ focus will now turn to employment data from the UK and the all-important investor sentiment results from Germany.

UK employment figures and the German ZEW Economic Sentiment Index are the major focuses for European currency markets today. The German ZEW Economic Sentiment Index surprised markets with an about turn, leaping up to 3.1 in April from -3.6 last month and well above expectations of the 0.8 forecast. The ZEW institute attributed this rebound to less pronounced concerns about a global economic slowdown and the postponed date for the UK to leave the EU, which could have helped improve sentiment across Europe.

UK employment joint highest on record

In the UK, we’re actually going to be able to get through another currency news update without mentioning that word ending in “…it” – what a treat! Meanwhile, data from the Office for National Statistics (ONS) on UK employment shows that employment in the UK is at the highest figure on record and an improvement on this time last year; at 76.1%, compared to the figure of 75.4% in 2018. The unemployment rate is at the joint lowest recorded – unemployment has not been lower in the UK since 1975. 

Can the Pound and Euro make hay while the sun shines?

So, both the Pound and the Euro have some good news to buoy them up – can they gain ground against their major currency partners, particularly the beleaguered commodity currencies?

Soul searching 

And it is very sad news about the devastating fire at Notre-Dame Cathedral, a stunning symbol of French history and a UNESCO World Heritage Site. It is fascinating from a financial perspective when looking at the money pledged to help support renovations. With just one company able to access funds of around EUR 200,000,000 for the cause; and another offering EUR 100,000,000, maybe the global economy isn’t in such bad shape after all? Perhaps we’re just looking in the wrong places? Such a deep emotional connection to a rich and important historical institution is a fantastic financial driver. Food for thought…


Planning payments internationally? 

Friday 19th and Monday 22nd April are Bank Holidays - often a volatile time for currency markets, so seek guidance from the Halo Financial team before the markets move.



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