Daily Currency Update
Declining UK construction output left the Pound trending in a broadly softer position on Friday, with the British asset struggling to make any headway against peers like the Euro and US Dollar. Sterling came under additional pressure over the weekend as Jeremy Corbyn was elected Labour leader. As Corbyn is Eurosceptic the victory increased Brexit concerns and had a detrimental impact on demand for the Pound. UK data is lacking today, but the Pound recouped some of its losses as the European session opened. This week’s British inflation and employment numbers can be expected to inspire Sterling volatility.
At the close of last week disappointing UK construction data helped the Euro advance by around 80 pips against its British peer. Also on Friday, Germany’s final inflation figures for August confirmed annual consumer price inflation of 0.2%. As the result was unchanged from a previous estimate it had little effect on the common currency. The Euro could soften today if the Eurozone’s Industrial Production data prints at 0.7% in July, year-on-year, as economists have forecast. This would be down from the annual output of 1.2% recorded in June.
With the Federal Open Market Committee’s interest rate decision looming the US Dollar was putting on a patchy performance at the start of the week. While most industry experts put the odds of a rate hike occurring at just 30%, it is possible that the Fed will shock markets with a positive adjustment. If that proves to be the case the ‘Greenback’ could storm higher. Conversely, if the Fed signals that it will be taking a ‘wait-and-see’ approach to fiscal policy in the short-to-medium term the US Dollar may tumble against peers like the Pound and Euro.
Although the Australian Dollar dipped against a broadly stronger Pound on Monday, the South Pacific asset was stronger against the US Dollar despite the mixed nature of China’s Industrial Production and Retail Sales figures. Industrial production printed at 6.1% on the year in August, up from 6.0% in July but lower than the 6.5% forecast. Meanwhile, retail sales came in at 10.8% YoY, an improvement on the 10.6% projection. Although ANZ analysts have speculated that the Australian Dollar could fall below 60 US cents, the commodity-driven currency may surge later in the week if the Federal Reserve refrains from adjusting interest rates and adopts a dovish tone.
New Zealand Dollar
The New Zealand Dollar gained on the US Dollar and Euro on Monday as a domestic Performance of Services index jumped from a positively revised 56.6 to 58.2 in August. New Zealand is scheduled to publish current account, growth and consumer confidence data later in the week but the Federal Reserve’s interest rate announcement could prove to be a more major cause of NZD volatility.
With analysts from Goldman Sachs asserting that crude oil prices are likely to fall further next year, the Canadian Dollar edged slightly lower before the weekend. Notable Canadian data is lacking today but tomorrow’s domestic Existing Home Sales report may have an impact on ‘Loonie’ trading. Investors will also be looking ahead to the week’s more high-profile Canadian ecostats, including Wednesday’s Manufacturing Shipments numbers and Friday’s inflation data.
South African Rand
With investors adopting a cautious stance towards emerging-market assets ahead of the FOMC interest rate announcement, the Rand was pressured lower against several of its peers. A decline in Chinese shares also weighed on the Rand. This week’s South African current account and retail sales numbers are likely to have a comparatively muted impact on the Rand with traders so focused on the Fed.