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By Nick Parsons

USD at weakest since December 1st. AUD/USD hits 2-month high, NZD/USD at best level in 10 weeks.


Australian Dollar

AUD

Expected Range

The Australian Dollar was just edged out of top spot last week by its Canadian counterpart. A solid but unsurprising Mid-Year Economic and Fiscal Outlook earlier in the week was followed by a relatively upbeat set of RBA Board Minutes before they headed off for the Summer holidays. There is now no further meeting scheduled until the first Tuesday in February.<br> <br> With no Central Bank to worry about and no data to concern investors, the Aussie Dollar opened the first day after Christmas in as good a shape as its cricket team. Plenty of runs on the board before lunch, a dour afternoon session and a late flourish saw AUD/USD hit a high of 0.7730; its best level since October 25th.<br> <br> Although the AUD certainly begins this 2017/18 holiday season in much better shape than might have seemed likely just a few weeks ago, it remains to be seen whether it can sustain its recent strength. Against the US Dollar, it is up over 2 cents in a fortnight whilst against the British Pound it has gained more than 6 cents over the past three weeks. The price action seems to reflect a squeeze on short positions in the institutional and hedge fund community rather than any fundamental reappraisal of the currency. For any locals planning an overseas vacation, this might represent a very good opportunity to load up on some cheaper spending money.<br> <br> The AUD opens in Asia this morning at USD0.7728 with AUD/NZD at 1.0985 and GBP/AUD1.7305.

British Pound

GBP / AUD

Expected Range

The British Pound didn’t have a great end to last week but after testing the lows around USD1.3350 at the start of Tuesday’s New York session, it subsequently rallied around 30 pips in generally thin liquidity conditions.<br> <br> The latest revisions to the whole of the UK GDP data series last week served only to polarise opinion about the state of the economy. Upward revisions to Q4 2016 meant that in the calendar year which included the EU referendum, the UK economy was the joint fastest-growing in G7; its 1.9% rate was the same as Germany, above the US & Canada (both 1.5%) and well ahead of France’s 1.1%. The revised numbers also meant that the latest y/y growth of 1.7% in the year to September 2017 was better than the 1.5% which had been expected. Unfortunately, the revisions also raise the starting point for the next set of quarterly data, meaning we could see a sharp slowdown in the annual rate of growth when the Q4 numbers are published at the end of January.<br> <br> In the shouty echo chambers of social media, both sides in the Remain/Leave argument sought vindication in the GDP numbers. In the eyes of the foreign exchange market, the figures supported the view that the best of the UK’s post-referendum performance might now lie behind it and the early part of 2018 could well be more challenging. The GBP opens this Wednesday morning in Asia at USD1.3375 with GBP/AUD at 1.7305 and GBP/NZD at 1.9010.

Canadian Dollar

AUD / CAD

Expected Range

The Canadian Dollar was the best of all the major currencies last week. As well as the strong performance immediately after Thursday’s CPI and retail sales numbers, it’s worth pointing out how resilient the CAD was after a relatively soft set of GDP figures on Friday. USD/CAD spiked immediately from 1.2705 to 1.2885 yet by close of business had regained around three-quarters of its losses to finish the week at 1.2720.<br> <br> Unlike its American cousin, the Canadian stock market remained closed yesterday though the currency was well supported both by the general weakness of the US Dollar and by rising oil prices. NYMEX crude rose $1.50 dollars per barrel to a 2 ½-year high of $59.80 on reports of an explosion on a crude pipeline in Libya and voluntary OPEC-led supply cuts.<br> <br> The Canadian Dollar is even stronger in Asia this morning than at the end of last week. It opens at a 3-wek low (CAD stronger) of USD1.2693 with AUD/CAD at 0.9805 and NZD/CAD at 0.8925.

Euro

AUD / EUR

Expected Range

Five days have passed since the elections in Catalonia and it is still not clear who will form a regional coalition there, let alone what relations will be with the rest of the country. Although Spanish Prime Minister Rajoy's conservative Popular Party (PP) had a disastrous election, winning just three of the 135 seats, he will for the moment keep control of the region, because he imposed direct rule in October, invoking Article 155 of the constitution. That extraordinary measure was a first in post-Franco Spain and though it was said to be “temporary”, no end date has yet been announced for the current situation.<br> <br> The European Union has treated the matter as an internal affair for Spain to resolve and is highly unlikely to change its stance. Meantime, the Catalan economy has suffered. Thousands of businesses, including major banks and energy firms, have moved their headquarters out of the region and, as it accounts for around 19% of Spanish GDP, the economic uncertainty is weighing down on activity. The OECD, for example, now forecasts GDP growth of just 2.3% in 2018 after 3.0% in 2017.<br> <br> The ECB publishes its monthly Economic Bulletin on Thursday and it will be interesting to see how much weight, if any, it places on developments in Spain. The country accounts for only 11% of Eurozone GDP and is the fourth largest country after Germany, France and Italy.<br> <br> Having swung between USD1.1816 and 1.1877 yesterday in North America, the euro opens in Asia this morning at USD1.1862, with AUD/EUR at 0.6515 and NZD/EUR at 0.5930.

New Zealand Dollar

AUD / NZD

Expected Range

The New Zealand Dollar had a pretty symmetrical week before the Christmas break; falling for the first half and regaining pretty much all its losses in the second. Business confidence didn’t bounce back in December as many analysts had anticipated though the Q3 GDP numbers beat consensus estimates thanks to some upward revisions to back data. Having fallen from 0.7027 last Monday to 0.6960 on Wednesday, NZD/USD recovered to 0.7027 at Friday’s close.<br> <br> Overnight there are reports of a 4.2 magnitude earthquake which was felt in Marlborough and the Wellington region. This follows a 3.8 magnitude quake at 7.17pm on Tuesday around 10km south-west of Wellington that was felt by more than 4,000 people. Mercifully, both of these were light by recent standards and no injuries to people or severe damage to property have thus far been reported.<br> <br> Yesterday in the Northern Hemisphere, the NZD extended its gains to a near 10-week high of USD0.7038 before slipping back just a few pips to open in Asia this morning at 0.7035 with AUD/NZD at 1.0985.

United States Dollar

AUD / USD

Expected Range

The Dollar had a poor pre-Christmas week despite further record highs for the stock market, a rise in market interest rates at all points of the maturity spectrum and generally solid incoming economic data. Its index against a basket of major currencies opened on Monday morning at 93.50 which proved to be the high of the week; it subsequently fell almost without interruption to end on Friday around 92.85.<br> <br> Financial markets remained open in the world’s non-Christian centres on December 25th, with Tokyo and Shanghai the two stand-out markets, albeit volumes were not high. In China the renminbi jumped to USD/CNY6.5514; the strongest since mid-September though the US Dollar was little changed against other major currencies. Yesterday, as the United States returned to work, the US Dollar index opened around 92.80 and rose to 92.92 before then trading down to a 3-week low of 92.73.<br> <br> There were some US economic statistics released yesterday. The 20-city house price numbers published by S&P/CoreLogic showed the annual rate of growth around 6.2%, though 16 of 20 major U.S. cities experienced home price growth of 5% or higher: double the pace of average wage growth. Seattle prices rose almost 12.5% in the year to October whilst Las Vegas grew 10.2%. Later in the week, we’ll have consumer confidence on Wednesday, then the advance goods trade balance, weekly jobless claims and Chicago NAPM on Thursday.<br> <br> The US Dollar index opens in Asia this morning at 92.78.

By Nick Parsons

AUD and NZD both higher against USD whilst CAD surges after very strong CPI and retail sales data


Australian Dollar

AUD

Expected Range

On nearly any other day, the Aussie Dollar’s performance would have put it top of the pile in the FX universe, but the very sharp rally in the Canadian Dollar pushed the AUD into second place on Thursday. The AUD was bid right from the start of the European session and as dealing books were handed over to New York, AUD/USD reached 77 US cents for the first time since way back on November 2nd. <br> <br> The chief feature of this move is that it didn’t come on a day when the US Dollar was particularly weak. In fact, the USD index ended the day pretty much where it began at 92.90. Nor was it driven by any specific piece of Australian news or macroeconomic data. We have been warning here all week that as markets become increasingly less liquid as the Christmas holiday approaches that foreign exchange markets could be prone to sudden and seemingly random shifts and Thursday’s move amply illustrates the point we made.<br> <br> The number crunchers at the Australian Bureau of Statistics sensibly closed for the holiday season at midday yesterday and there will be no data releases at least until it re-opens on January 2nd. In this final morning update, we’ll leave the final words to the ABS who noted earlier this week that, “Santa will be busy this Christmas visiting the 2 million Australian families with children under the age of 12. The 2016 Census shows that most children live in New South Wales (1.2 million), Victoria (947,408) and Queensland (795,908). While the ABS doesn't record official reindeer numbers, the Census recorded 35 deer farmers in Australia who we’re sure could help Santa should any of his deer get tired.”<br> <br> The AUD opens in Asia this morning at USD0.7705 with AUD/NZD at 1.0990 and GBP/AUD1.7355. We wish all our Australian readers a very Happy Christmas, whatever your holiday plans.

British Pound

GBP / AUD

Expected Range

The British Pound had another up and down session on Thursday. Though it was quite resilient in the face of disappointing numbers on consumer confidence and car manufacturing, it finished pretty much unchanged against the EUR and USD, though well down against the Aussie, Kiwi and Australian Dollars.<br> <br> Latest industry figures from the Society of Motor Manufacturers and Traders (SMMT), show a 4.6 decline in the number of cars rolling off assembly lines in November to 161,479, taking annualised output to 1.69 million. This is an 18-month low after deliveries to the domestic market collapsed by more than 28 per cent; Only 15 per cent of UK cars built in November — 24,276, down from 33,745 in the same month last year — stayed in the home market, indicating rising nervousness among buyers. If the weak trend persists in December, UK car production will have suffered its first annual fall since 2009, when Britain was in the depths of the financial crisis. In that year, production plunged 31% to 999,460 cars.<br> <br> Separate figures earlier today by GfK showed UK consumer confidence fell again in December. The index fell by one point to -13, marking almost two years of declining consumer confidence. As their Press Release noted, “We need to see several issues move on before the downward trend of the consumer mood changes. We need to have a better sense of how Brexit will pan out, and also of how quickly and how far interest rates will rise. But none of this will be resolved quickly so there’s every likelihood that 2018 will take us lower.”<br> <br> The Pound opens in Asia this morning at USD1.3370 and GBP/AUD1.7355 with GBP/NZD at 1.9075.

Canadian Dollar

AUD / CAD

Expected Range

The Canadian Dollar exploded higher on Thursday after an extremely strong set of economic data on CPI and retail sales. By the end of the day, it was way out at the top of the FX leader board, rising 0.5% against the AUD and more than 1% against all the other major currencies we track here.<br> <br> The Bank of Canada has a 2% target for CPI and in October it predicted it would average 1.4% in the final three months of 2017. Policy makers didn’t expect a sustained return to 2% inflation until the end of next year. Instead, CPI inflation accelerated to 2.1% y/y in November from 1.4% in October. While the jump was due to a surge in gasoline prices (up 19.6% y/y), the increases went beyond energy. Prices were up in seven of the eight major CPI components in the 12 months to November, with the transportation and shelter indexes contributing the most to the increase.<br> <br> We don’t yet know the impact of these higher prices on consumers expenditure but the October retail sales figures also released yesterday showed plenty of forward momentum. Statistics Canada reported retail sales rose 1.5% to $49.9 billion in October. Higher sales at new car dealers were the main contributor to the gain. Excluding sales at motor vehicle and parts dealers, retail sales increased 0.8%. Sales were up in 7 of 11 subsectors, representing 79% of retail trade. After removing the effects of price changes, retail sales in volume terms increased 1.4%.<br> <br> The Canadian Dollar opens much higher in Asia this morning than it did 24 hours ago. It begins at USD1.2725 with AUD/CAD at 0.9800 and NZD/CAD at 0.8920 and we still have the monthly GDP for October to look forward to later in the day.

Euro

AUD / EUR

Expected Range

The euro was pretty much side-lined on Thursday with no economic data in the Eurozone, and politicians keenly watching elections as the Spanish region of Catalonia went to the polls. The election was called by the Spanish prime minister, Mariano Rajoy, at the end of October when the central government took control of Catalonia and sacked the regional government after it staged an illegal independence referendum and made a unilateral declaration of independence. The latest opinion polls suggest Catalonia is set for a hung parliament, with the pro-independence Catalan Republican Left party (ERC) vying for first place with the unionist, centre-right Citizens party.<br> <br> Article 155 of the Spanish constitution – which allowed Prime Minister Rajoy to sack the Catalan government and call elections – will remain in force until a new government has been agreed and a new regional president elected by the Catalan parliament. For the moment, and indeed for the forseeable future, no government in Europe is willing to support a Catalonian push for independence and the exiled leader of the secessionists, Carles Puigdemont, could well face arrest should he return from Belgium.<br> <br> The EUR opens in Asia this morning at USD1.1865, AUD/EUR0.6490 and NZD/EUR0.5910.

New Zealand Dollar

AUD / NZD

Expected Range

Just as the Aussie Dollar got back on to a new big figure against the US Dollar, so too the Kiwi Dollar spent nearly the entire day back on 70 cents with only a very brief dip down to 0.6990 around 11am London time which was quickly reversed. <br> <br> The move higher in NZD/USD can be pinned almost entirely on the New Zealand GDP figures. Ahead of their release, growth forecasts at the major banks locally ranged from +0.4% at Westpac to +0.7% at BNZ with the consensus at +0.6% q/q for an annual 2.4%. The official figures out yesterday morning showed a rebound in the construction sector drove gross domestic product up 0.6% in the three months ending September with an upwardly-revised +1.0% in Q2 helping lift the annual rate of growth to 2.7%. Statistics New Zealand also revised its GDP figures for previous years, raising 2015 growth to 3.6 percent from 2.4 percent and 2016 to 4 percent from 3 percent.<br> <br> The main bright spot in the latest figures was the construction sector, which grew 3.6 percent, unwinding two quarters of falls as investment went into rail, road and other infrastructure. But growth was dented by dairy production, which has been hampered by wet weather and lower global prices. As we suggested in our preview of the data, the RBNZ’s last Monetary Policy Statement assumed a +0.7% quarterly increase so anything less than this will reinforce expectations that interest rates will be on hold until at least 2019. Notwithstanding the upward revisions to prior periods, this has been very much the reaction from analysts locally and helps explain why NZD/USD still hasn’t broken Monday’s high around 0.9027.

United States Dollar

AUD / USD

Expected Range

Given the one story which has dominated financial markets for the last few months, we can’t resist reporting that the US Dollar yesterday rose against Bitcoin to end the day at USD/XBT0.0000649. Against the currencies which can actually be used for the payment of goods and services, the USD was either unchanged (EUR and GBP) or lower (NZD, AUD and CAD). It’s index against a basket of major traded currencies slipped very slightly to end at 92.83; the lowest since December 5th.<br> <br> The bumper crop of economic data in the US on Thursday was somewhat mixed. The second revision to Q3 GDP showed the annualised pace of growth slipped from a previously reported 3.3% to 3.2%, whilst weekly jobless claims rose much higher than expected from 231k the prior week to 241k. Against this very marginal softness, however, the Philly Fed survey jumped from 21.5 in November to 26.2 whilst the November index of leading economic indicators rose 0.4%, in line with consensus forecasts and the 15th consecutive monthly increase. The index was boosted by strong ISM new orders, higher stock prices, the positively-sloped yield curve, elevated consumer confidence and somewhat easier credit conditions. <br> <br> Whilst their counterparts in the Southern hemisphere have sensibly headed off on vacation, there’s plenty still for the US statisticians to report on before their Christmas break begins. Friday brings not only durable goods orders, new home sales and the Michigan survey of consumer sentiment, but also the monthly personal income and expenditure numbers as well as the much-watched (and Fed targeted) PCE deflators. The US Dollar index opens in Asia this Friday morning at 92.86 but where it finishes in extremely illiquid market conditions in New York this afternoon is anyone’s guess…

By Nick Parsons

The longest day of the year Down Under: AUD and NZD steady as USD Dollar edges lower. NZD Q3 GDP is released today.


Australian Dollar

AUD

Expected Range

As we head into the longest day of the year in the Southern Hemisphere, the trading ranges for the Aussie Dollar have narrowed quite noticeably. Over the past 48 hours, AUD/USD has been stuck in a 32 pip range from 0.7647 to 0.7679 with little in the way of catalysts or investor enthusiasm to move it one way or the other.<br> <br> Having amused everyone yesterday with a Press Release entitled “Seasonally adjusted greetings from the ABS”, which looked at some of the quirkier numbers around Christmas, the official statisticians separately drew some insights into Australia’s ageing population. They noted that in 2016, nearly one in every six people (16 per cent) was aged 65 years and over, an increase of 664,500 since 2011. Additionally, in 2016, there were almost half a million people (486,800) aged 85 years and over, an increase of around 85,000 people over the past five years.<br> <br> In 2016, over a third of people aged 65 years and older (37 per cent) were born overseas. About two thirds of these (67 per cent) were born in Europe, while almost a quarter of older overseas born people (24 per cent) reported that they were born in England. While the majority of older people (82 per cent) only spoke English at home in 2016, Italian (3.2 per cent) and Greek (2.2 per cent) were among the most commonly reported languages other than English. <br> <br> We’ll leave the last words on both population and Christmas to the ABS without further comment: “if you are celebrating your birthday on Christmas Day you are in rare company as the last 10 years of data shows it is the second least common birthday, after February 29. However, the Christmas and New Year holidays are the most likely time for babies to be conceived.”<br> <br> The AUD opens in Asia this morning at USD0.7660 with AUD/NZD at 1.0980 and GBP/AUD1.7475.

British Pound

GBP / AUD

Expected Range

The pound had a very mixed day on Wednesday, rising through to mid-afternoon London time but then slipping back in the New York session. It ended little changed against a weaker USD which meant it fell against all the major currencies we track here.<br> <br> The IMF released its annual report on the UK economy, with its Managing Director Christine Lagarde in London for a Press Conference. The IMF had been criticised 18 months ago for taking sides with former Chancellor George Osborne in the run-up to the EU referendum. Defending its forecasts, Ms Lagarde said that, “the Brexit referendum result and the decision to invoke Article 50 are already having an impact on the economy even though the UK is not planning to leave the EU until 2019. <br> <br> She added, “We feared that if Brexit was decided upon, it would most likely entail a depreciation of sterling, an increase in inflation, a squeezing in wages and a slowdown and a reduction of investment. What we are seeing is that that narrative we identified as a potential risk is being rolled out as we speak. It’s not experts talking, it’s the economy saying that. Our forecast is 1.6 per cent GDP growth this year and 1.5 next year, which relative to the upward revisions we are advocating for other advanced economies is a bit of a disappointment.”<br> <br> The IMF’s statement concluded, “Despite a strong recovery in global growth and supportive macroeconomic policies, the impact of the decision to exit the European Union has weighed on private domestic demand. Business investment growth has been lower than would be expected in the context of strong global growth and high levels of capacity utilization, owing to heightened uncertainty about economic prospects.”<br> <br> The Pound opens in Asia this morning at USD1.3395 and GBP/AUD1.7450 with GBP/NZD at 1.9190.

Canadian Dollar

AUD / CAD

Expected Range

We warned here yesterday of the sometimes random nature of foreign exchange markets and highlighted the price action in the Canadian Dollar as an example of sudden directional shifts. On Tuesday afternoon USD/CAD broke through the November highs of 1.2900 and 1.2905; reaching a best level of 1.2912 before quickly reversing 40 pips lower. On Wednesday, the pair extended the move to the downside and the CAD finished the second-best currency on the day after the EUR.<br> <br> In economic news locally, wholesale sales increased a much stronger than expected +1.5% to $63.0 billion in October, more than offsetting the 1.1% decline in September. Gains were reported in six of seven subsectors, together representing 81% of total wholesale sales. The machinery, equipment and supplies and the personal and household goods subsectors contributed the most to the increase.<br> <br> Wholesale inventories, meantime, increased 0.8% to $82.1 billion in October, the sixth gain in seven months. The machinery, equipment and supplies subsector (+3.5%) led the increases, with higher inventories in all four industries in the subsector. In October, the increase was led by the construction, forestry, mining, and industrial machinery, equipment and supplies industry (+3.5%). The machinery, equipment and supplies subsector has recorded increases in four of the past five months, increasing 7.0% over that period.<br> <br> The Canadian Dollar opens in Asia this morning at USD1.2830 with AUD/CAD at 0.9835 and NZD/CAD at 0.8950.

Euro

AUD / EUR

Expected Range

The euro followed up on Tuesday’s rally with a second day at the top of the FX league table on Wednesday; all of its gain coming very late in the European day and in the New York morning. The absolute magnitude of the move was not great – a 40 pip rise from 1.1843 to 1.1883 but the market was so quiet generally that it was enough for the EUR to take top spot.<br> <br> A look at pricing in the FX options market shows just how quiet things are. As Bloomberg notes, in the run-up to the holiday season, and especially in the days around Christmas, liquidity in the market drops considerably, increasing the risk that a currency faces abrupt moves even on small volumes. “One-week implied volatility in the euro-dollar dropped for an eighth day on Tuesday and traded as low as 4.73 percent, a level unseen since August 2014. A close below 5 percent would mark a record low for this time of year since the euro came into circulation.<br> <br> One-week options structures cover a series of major US economic data including gross domestic product, durable goods, income and spending numbers, and the Federal Reserve’s preferred gauge of inflation PCE. Clearly, the market is not pricing any directional risk from these indicators or, indeed, any unforseen exogenous shock.<br> <br> The EUR opens in Asia this morning at USD1.1880, AUD/EUR0.6450 and NZD/EUR0.5872.

New Zealand Dollar

AUD / NZD

Expected Range

Wednesday’s movements weren’t large anywhere in the FX universe, though after the US Dollar the New Zealand Dollar was - only very marginally - the weakest of the major currencies we track here. NZD/USD recovered well from its 0.6958 low but spent the whole of the Northern Hemisphere session on a US 69 cents big figure; unable to regain the 70c threshold which it occupied between Friday and Tuesday.<br> <br> Though we love the detail and insights which Statistics New Zealand bring to their many different economic, social and demographic snapshots of the country, even their most ardent fans would have to concede that 11 weeks is a long time to wait for quarterly GDP numbers. Finally though, today we’ll get to see how the economy performed in the three months to September.<br> <br> We know that the June quarter benefited from a pickup in milk production and a spike in tourist numbers during the Lions rugby tour. GDP grew +0.8% in Q2 to take the annual rate to 2.5%. For the last quarter, growth forecasts range from +0.4% at Westpac to +0.7% at BNZ with the consensus at +0.6% q/q for an annual 2.4%. The RBNZ’s last Monetary Policy Statement assumed a +0.7% quarterly increase so anything less than this will reinforce expectations that interest rates will be on hold until at least 2019.<br> <br> NZD/USD opens in Asia this morning at 0.6980 with AUD/NZD at 1.0980. The GDP figures are released at 10.45am local time.

United States Dollar

AUD / USD

Expected Range

The Dollar fell steadily across time zones on Wednesday, unable to gather much support either from strong economic data (existing home sales), higher bond yields or a rallying stock market. By the end of the London afternoon its index against a basket of major currencies had fallen to 92.85; its weakest level for a fortnight. The fall came – and we are wary of inferring causality – as the 3-month cross-currency basis swap (the price of borrowing dollars) suddenly reversed the move of last week which had persistently weighed down on the EUR/USD exchange rate.<br> <br> The US Senate has at last approved the $1.5 trillion tax reform bill, which includes permanent tax breaks for corporations and temporary tax cuts for individuals, by a final vote of 51-48. Once enacted, the legislation will represent the most drastic change to the US tax code since 1986. The bill lowers the top individual tax rate from 39.6% to 37% and slashes the corporate tax rate to 21%, a dramatic fall from its current rate of 35%. Speaking at a Press Conference after the vote, Senate majority leader Mitch McConnell hit back against criticism that the tax overhaul was unpopular among the public. “If we can’t sell this to the American people, we ought to go into another line of work.” Let’s see if this line comes back to haunt him at some point in the future.<br> <br> For the day ahead in the US, there’s a bumper crop of economic data releases: The third estimate of Q3 GDP, weekly jobless claims, the Philly Fed index, the Chicago Fed index of national activity and then November’s leading economic indicator. The US Dollar index opens in Asia at 92.86.

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