Daily Currency Update
The Pound was left trending lower against the majority of its currency counterparts on Thursday as yet more conflicting commentary from the Bank of England (BoE) weighed on UK interest rate hike expectations. This time it was MPC member Ben Broadbent speaking out, with the official asserting that even without the situation in China he wouldn’t be considering voting for higher borrowing costs at this juncture. The UK’s BBA Loans for House Purchase figure also came in slightly lower than estimated, although it still represented a five-year high. With UK data in short supply today Sterling movement may be limited before the weekend.
Bets that the European Central Bank (ECB) will refrain from adjusting quantitative easing for the foreseeable future lent the Euro support in the second half of the week. Demand for the common currency also remained slightly stronger as the German IFO Business Climate and Expectations reports printed more strongly-than-anticipated. Whether the Euro’s uptrend continues largely depends on how next week’s Consumer Price Index (CPI) for the Eurozone comes out. An increase in inflation would be Euro-supportive as it may further defer ECB intervention.
The US Dollar held previous gains against the Pound on Thursday despite US initial jobless and continuing claims figures disappointing expectations. Some ‘Greenback’ support came from the news that US Durable Goods Orders fell by -2.0% in August rather than the -2.3% anticipated. US New Home Sales also rose by more-than-forecast. Later in the local session Fed Chairwoman Janet Yellen pushed USD higher by asserting that it ‘will likely be appropriate to raise the target range for the federal funds rate sometime later this year’. In the hours ahead the US second quarter growth figure and Markit Services/Composite PMI numbers could have an impact on US Dollar trading, as could the University of Michigan Confidence index for September. Positive reports may see ‘Cable’ brush new lows while negative releases could help the Pound gain on the US Dollar before the weekend.
With Federal Reserve chief Janet Yellen keeping hopes of a 2015 interest rate adjustment alive, commodity-driven currencies like the Australian Dollar declined. The AUD/USD exchange rate fell back below the key support level of 70 US cents, although it has since recovered from its initial lows. Next week investors with an interest in the Australian Dollar will be focusing on news from China. If the Asian nation’s manufacturing/services PMIs provide cause for concern, the ‘Aussie’ is likely to slide.
New Zealand Dollar
Demand for the New Zealand Dollar was also adversely affected by the latest comments from Janet Yellen and the ‘Kiwi’ gave up some of the gains recorded earlier in the week as a result of rising dairy prices. Next week New Zealand is set to release a few notable ecostats, including the nation’s Building Permits, Activity Outlook, Business Confidence and Commodity Price figures. News from China and the US will also be having an impact on the performance of the South Pacific currency.
After the Norwegian Central Bank cut interest rates in response to the impact sliding oil prices is having on the domestic economy, the Canadian Dollar broadly softened. Given that Canada, like Norway, is reliant on oil trade, the decision prompted speculation that the Bank of Canada (BOC) may also have to cut borrowing costs in the near future. Any fluctuations in the price of black gold could spark ‘Loonie’ movement as we approach the end of the week.
South African Rand
Renewed Chinese slowdown concerns and hawkish remarks from the head of the Federal Reserve conspired to push the South African Rand to fresh record lows against both the US Dollar and Euro. The Rand was also struggling against the Pound. Chinese developments will continue having a significant impact on Rand trading next week, but the direction taken by the emerging-market currency may also be dictated by the results of South Africa’s latest manufacturing and confidence data.