Daily Currency Update
The Pound Sterling to Euro exchange rate remained close to a two-month high on Monday, with the Euro still feeling the pressure following last week’s dovish commentary from the European Central Bank (ECB). Sterling largely brushed off the impact of below-forecast BBA Loans for House Purchase and CBI Trends Total Orders/Business Optimism data but the British currency could come under pressure today if the UK’s third quarter growth report shows the deceleration in output anticipated by economists. While an annual growth rate of between 5-7% may leave the Pound little moved, anything below that would be Sterling negative.
Given that the Federal Open Market Committee (FOMC) is due to deliver its rate decision this week, any high-profile ecostats from the US are being given particular consideration. The US New Home Sales and Dallas Fed Manufacturing Activity Index printed below forecast levels on Monday and if today’s US Durable Goods Orders figure shows the -1.3% drop expected, the prospect of a dovish statement from the FOMC could weigh on the ‘Greenback’. However, the US Markit Services PMI and Consumer Confidence numbers are expected to print well.
Last week European Central Bank (ECB) President Mario Draghi asserted that the central bank is considering adjusting its current stimulus measures in order to bolster economic growth and drive inflation higher. The dovish tone of his remarks sent the Euro spiralling lower and the common currency has so far failed to regain lost ground. Monday’s German reports were mixed, with the IFO Business Climate and Expectations measures coming in higher than expected but the Current Assessment Index falling by more-than-projected. Economic reports for the Eurozone are lacking today but Wednesday’s German GfK Consumer Confidence index may inspire movement.
While the rate cuts introduced by the People’s Bank of China (PBoC) weighed on the Australian Dollar at the start of the week, the commodity-driven currency was able to firm slightly ahead of the release of Australian inflation data and the Federal Open Market Committee’s (FOMC) interest rate announcement. During the Australasian session the ‘Aussie’ was little effected by the news that the ANZ Roy Morgan Weekly Consumer Confidence Index increased modestly from 113.3 to 113.4. China’s Industrial Profits report for September also had a limited impact, coming in at -0.1% year-on-year. If tomorrow’s report shows that annual Australian consumer price pressures rose in the third quarter the South Pacific currency could rally.
New Zealand Dollar
After previously gaining on the Pound during the European session, the New Zealand Dollar broadly weakened overnight. The ‘Kiwi’ slumped against several of its currency counterparts as New Zealand’s latest trade data revealed an unexpected widening in the nation’s trade deficit. Economists had expected the deficit to narrow in September but export growth fell short and import growth exceeded estimates.
The Canadian Dollar got off to a fairly slow start to the week, with developments in China piling pressure on the commodity-driven currency and no Canadian data being published to lend the asset support. The ‘Loonie’ extended losses against the Pound ahead of the release of the UK’s third quarter growth data but could stage a rebound later today if the GDP number falls short.
South African Rand
The Rand spent Monday firming against peers like the Pound and US Dollar as the risk-off environment inspired by the PBoC announcement eased and investors continued speculating over the likely outcome of this week’s FOMC decision. Today’s South African unemployment data could have an impact on Rand volatility.