- Improved Service Sector Growth Failed to Encourage AUD Gains – Forecasts point towards widened trade surplus
- Euro Rallies as Eurozone Growth Hits Seven-Year High – Currency union continues to power ahead of its rivals
- Uninspiring Federal Reserve Minutes Leave US Dollar on Downtrend – Strong wage data may encourage greater USD demand
- Pound Fails to Capitalise on Stronger UK Services PMI – Political jitters mount ahead of anticipated cabinet reshuffle
Even though December’s Australian services PMI showed a modest improvement on the month this failed to particularly shore up AUD exchange rates. Demand for the Australian Dollar faltered somewhat on Thursday, given the solid gains that the antipodean currency has made in recent weeks. While a general sense of market risk appetite remained this was not enough to keep the ‘Aussie’ on a bullish trend.
However, with forecasts pointing towards a significant widening of the Australian trade surplus the appeal of the Australian Dollar could still pick back up ahead of the weekend.
The UK services PMI for December bettered expectations, strengthening from 53.8 to 54.2. However, the underlying details of the report were less encouraging than this solid headline figure, with signs pointing towards a loss of growth momentum in the coming months. This left the Pound on a generally weaker footing, even after a dip in net consumer credit raised hopes of a more optimistic Bank of England (BoE) outlook.
With political jitters mounting ahead of Theresa May’s awaited cabinet reshuffle the mood towards Sterling looks set to deteriorate further over the course of the day.
An upward revision to the finalised Eurozone services PMI helped to shore up the single currency overnight, with the currency union seeing its strongest growth since 2011. With the Eurozone economy expected to continue powering ahead in 2018 this prompted a fresh bout of EUR exchange rate bullishness. The relative weakness of the US Dollar also offered support to the Euro, thanks to the negative correlation of the EUR/USD exchange rate.
If the latest Eurozone consumer price index points towards an increase in inflationary pressure the Euro could extend its gains further.
While the ADP employment change figure unexpectedly leapt higher on the month this failed to galvanise any particular support for the US Dollar. Investors remained dispirited in the wake of the Federal Open Market Committee (FOMC) meeting minutes, which did not offer any particular policy clues. As the odds of an imminent interest rate hike remain up in the air, and market risk appetite strengthened further, USD exchange rates returned to a bearish trend.
A rally could be in store for the US Dollar tonight, however, if December’s non-farm payrolls report shows an increase in wage growth.
Some of the steam went out of the oil market in response to reports that the recent disorder in Iran is at an end, with the threat to domestic production seeming to have dissipated. This limited the appeal of the Canadian Dollar, even though oil prices continued to trend in excess of the psychologically important US$60 per barrel mark. An uptick in November’s Canadian producer price index also failed to support CAD exchange rates, with investor reaction to the news muted.
As the Canadian unemployment rate is forecast to have risen from 5.9% to 6.0% in December the Canadian Dollar could face further downside pressure tonight.
New Zealand Dollar
NZD exchange rates benefitted from market reaction to the Fed minutes, with the uncertainties of US policymakers offering a boost to the commodity-correlated New Zealand Dollar. While the outlook of the Reserve Bank of New Zealand (RBNZ) remains similarly unsure the diminished odds of an imminent Fed rate hike encouraged investors. Positive Chinese data also helped to increase demand for the antipodean currency on Thursday.
In the absence of any fresh domestic data the New Zealand Dollar’s recent gains look rather fragile today.
January 5th 10:30 AUD Trade Balance (NOV) 500 million
January 5th 17:00 EUR German Retail Sales (YoY) (NOV) 2.3%
January 5th 20:00 EUR Eurozone Consumer Price Index Core (YoY) (DEC) 1.0%
January 5th 23:30 CAD Unemployment Rate (DEC) 6.0%
January 5th 23:30 USD Change in Non-Farm Payrolls (DEC) 188,000
Post by TorFX