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February 2017

Aussie Dollar strengthens on Reserve Bank of Australia confidence

Published: Tuesday 07 February 2017

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  • Aussie Dollar strengthens on Reserve Bank of Australia confidence
  • European Central Bank warns of stress from monetary tightening
  • PwC sees UK beating the G7 for 30 years
Australian retail sales showed a surprising contraction in December. The important Christmas month saw sales fall by 0.1%; against estimates of a 0.3% rise. The last quarter of the year was positive overall, though, and that bodes well for the Q4 GDP growth data. We also heard a calm but positive tone in the Reserve Bank of Australia’s (RBA) statement. They left their base rate on hold and the markets liked that confidence. Consequently, the Australian Dollar gained a cent against the Pound overnight.
 
European Central Bank (ECB) President, Mario Draghi, has warned of unexpected consequences as and when the ECB starts turning off the cheap money taps. He warned that the markets have come to rely on easy money from Frankfurt and warned that “Liquidity is there until it is not, and it goes very quickly.” Well, his central bank is the decision maker on that, so he should know. The threat of tighter monetary control strengthened the Euro overnight. Mr Draghi also sought to counter the threat from Marine Le Pen to withdraw from the Euro if she is elected in France. “L’euro e’ irrevocabile,” he said, (No translation required, methinks) but of course, when it comes to sovereign states, anything is renegotiable.
 
A report from the PwC chief economist sees the UK suffering some ‘medium term lag’ from Brexit, but being the top performing of the G7 nations through to 2050. It is brave to forecast more beyond teatime in these volatile markets, but I hope he is right. Sterling traders aren’t convinced, though, because the Pound hasn’t flinched. There is little UK data for traders to concentrate on though; and only the Halifax House Price Index will cross their screens from the UK this morning. 
 
This afternoon brings Canadian housing market data plus the Ivey Business Sentiment Index. We expect this data to be quite upbeat, so there is room for CAD strength in the late afternoon UK time.
 
And the owner of a six bedroom mansion in Lancashire has resorted to raffling the property after he failed to sell it. For £2.00, you can buy a ticket to win the property, which was on the market for £650,000. I guess as long as he sells 325,000 tickets, he is breaking even. He has printed 500,000. Good luck!
 

Joke

 
“Hello, is that Mr Drew?” says the voice on the other end of the phone.
“Yup,” says the farmer.
“This is Michael Stephens from the E-wind Turbine Company. We fitted your wind turbine eight months ago and, I am sorry to say, we haven’t had a single payment from you so far, so I need to know when you are going to settle the outstanding amount.”
“That wasn’t the arrangement.” Says the farmer. “Your sales chap said it would pay for itself in 18 months. Call me in 10 months if that doesn’t work out for you.”

 

Today's Major Economic Releases
 

Market
BST
Data/Event
Previous
Expected
CAD 13:30 Canada: Trade Balance
0.5b
1.2b
CAD 13:30 Canada: Building Permits month-on-month -0.1% -3.5%
USD 13:30 US: Trade Balance -45.2b -45.0b
CAD 15:00 Canada: Ivey Purchasing Managers' Index 60.8 58.3
USD 15:00 US: JOLTS Job Openings 5.52m 5.56m
 
Daily Currency Analysis by David Johnson