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January 2017

NZ Dollar stronger as trade deficit narrows

Published: Monday 30 January 2017

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  • NZ Dollar stronger as trade deficit narrows
  • Sterling holds ground after strong Gross Domestic Product data
  • Article 50 debate awaited
  • Bank of England and Federal Reserve in action this week

A belated wish of Happy New Year to our Chinese readers. We hope the Year of the Fire Rooster brings you health, wealth and happiness.
 
The odds on two 35-year olds winning the men’s and women’s championships at the Australian Open must have been amazing. Wish I‘d had a few quid on it. Well done to Roger and Serena for teaching the youngsters a thing or two. 
 
I attended a roundtable discussion in the immediate aftermath of the Brexit decision. It was co-sponsored by Halo Financial and was attended by a respected group of well-informed people from business and politics. The general conclusion was that politicians would do what politicians do, but business would find a way to carry on. That appears to have been borne out by last week’s UK Gross Domestic Product (GDP) estimate. It showed that the UK economy is outperforming the naysayers in spite of the stream of gloom being poured from the newswires. Despite this, I suspect the Bank of England’s (BoE) monetary policy committee will leave the base rate alone for many months to come, but this week’s announcement may offer clues on their perception of the timing of any rate hike. This, at a time when we are seeing the return of inflation; driven by higher commodities and improving demand.
 
The week ahead brings a barrage of data releases and a slew of central bank events. Purchasing Managers Indices (PMI) abound and consumer data is very well represented. In amongst these, though, will be the headlines. UK Employment is expected to have picked up again, as is the UK Manufacturing data. However, the Bank of England’s decision and meeting minutes will be more influential and all of that will be overshadowed by the debate on triggering Article 50 to start the Brexit negotiations. Having won the right to vote on the triggering of the end of the UK’s membership of the EU, MPs are going to revel in the grandstand opportunity it affords them… and then mostly vote to go ahead, because the majority of the UK public said so.
 
From the US, we will have the Federal Reserve’s take on interest rates and the timing of any rate rise from them. Nothing will happen this week, but there is scope for one or two hikes this year. The US Dollar is weaker than it has been of late, largely due to rising commodity prices and the recovery of strength in other currencies. Quite apart from anything the new president might think up on the spur of the moment, other factors that may affect the US Dollar include Manufacturing and Service Sector data.
 
The New Zealand Dollar gained half a cent against the Pound overnight after better than expected trade data showed the deficit was less than half the level economists had forecast.  There is a strong chance the NZ Dollar may strengthen again this week as forecasts for the NZ Employment data are pretty strong.
 
Australian traders are awaiting, what is expected to be, improved trade surplus figures. In November Australia posted its first trade surplus since early 2014 and December’s number is expected to be a healthy improvement on that. There is room for the Aussie Dollar to strengthen as we approach the data release early Thursday morning (UK time).
 
And I hope you are impressed. I managed to get all the way through this report without using the word ‘Trump’… Doh!
 

Keepsake

 
Edith and Marjorie meet at the over 70s group of their local Women’s Institute. Edith notices Marjorie is wearing a new locket and compliments her on it. “Does it have something special inside?”
“Yes,” says Marjorie. “It has a lock of Harry’s hair in it.”
“Oh No…” says Edith. “You’re not saying Harry is no longer with us, are you!”
“No,” says Marjorie. “Harry is very definitely still with us… but his hair, not so much.”
 

Today's Major Economic Releases
 

Market BST Data/Event Previous Expected
USD 13:30 US: Core Personal Consumption Expenditures (PCE) 0.0% 0.1%
USD 13:30 US: Personal Spending month-on-month 0.2% 0.4%
USD 15:00 US: Pending Home Sales month-on-month -2.5% 1.6%
 
Daily Currency Analysis by David Johnson
 
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