Daily Currency Update
As traders await the UK Markit Construction PMI (forecast to tick higher from 57.3 to 57.5) the Pound edged higher versus its major peers. The appreciation can be linked to predictions that the Federal Reserve will hike the benchmark interest rate within 2015 after policymaker John Williams backed comments made earlier by Chairwoman Janet Yellen. Given that most policymakers don’t see the Bank of England (BoE) raising rates ahead of the Fed, the hawkish comments from Williams aided demand for the British asset.
Given the negative correlation between the Euro and the US Dollar, the recent ‘Greenback’ (USD) upswing has dampened demand for the common currency. With the ongoing threat of European Central Bank (ECB) stimulus after Eurozone inflation dropped to -0.1 the single currency is unlikely to see a speedy recovery, and today’s Eurozone Producer Price Index is not expected to print positively.
Federal Open Market Committee (FOMC) policy maker John Williams made a speech during Thursday’s North American session in which he backed fellow policy maker and Fed Chair Janet Yellen’s recent comments. Both stated that a near-term rate hike was appropriate with the domestic economy on a strong footing. Williams went as far as to say that the Federal Reserve may hike the cash rate this month. As a result the Dollar surged overnight and has settled in a strong position versus its peers. Change in Non-Farm Payrolls and Unemployment Rate data will be of significance; not only in the provocation of ‘Greenback’ movement, but also as a good indicator to policymakers regarding the current state of the labour market.
After both New Home Sales and Retail Sales data produced positive results, the Australian Dollar strengthened versus its major peers. The uptrend has been somewhat slowed, however, amid speculation that the Federal Reserve will indeed hike the lending rate within 2015. US data, due for publication on Friday afternoon, has the potential to spark changes for the ‘Aussie’ (AUD).
New Zealand Dollar
New Zealand’s ANZ Commodity Price report for September advanced by 5.5% which was significantly better than the previous contraction of -5.2%. This saw increased demand for the New Zealand Dollar which has strengthened considerably this week. The Shanghai Composite Index ended the Asian session 0.5% up for the third-consecutive day, but the ‘Kiwi’ (NZD) appreciation has slowed after futures traders brought forward bets regarding the timing of a Federal Reserve rate hike.
Although crude oil prices continue to strengthen as China’s equity market stabilises, the Canadian Dollar was trending narrowly versus its currency rivals on Friday morning. The lack of appreciation can be linked to Fed policymaker John Williams’ comments. With low oil prices having a significantly detrimental impact on Canada’s economic growth, many fear that the Bank of Canada (BOC) will be forced to ease policy. This amplifies the potential for the neighbouring nations to see wider policy divergence which could hamper trade.
South African Rand
Having appreciated significantly of late in response to rising precious metal prices, the South African Rand edged lower on Friday. This is partly in response to hawkish Fed policymakers, but also as a result of trader profit locking after the recent surge opened up some attractive selling opportunities.