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By Nick Parsons

China PMI Surveys, Q4 capex are important for AUD, but Fed Chair Powell’s testimony on Tuesday could be key to financial markets


AUD / NZD

Expected Range

After a brief period last Monday on US 74 cents, the New Zealand Dollar spent much of last week on a US 73 cents ‘big figure’; until Friday morning when it broke down into the high 72’s. Though the story of NZD/USD was a steady decline (other than the Wednesday night spike higher which all the other FX majors enjoyed against the USD) the main action was on the AUD/NZD cross which fell on Thursday to a fresh 6-month low of 1.0655; the lowest since August 4th last year. By Friday, however, a sharp reversal higher took the pair back to 1.0740 to leave it within a few pips of its starting point on Monday morning and left the NZD the worst performer on the day even as the locals had gone home and were already starting the weekend. <br><br> It was a slow week of mostly second-tier data, though things potentially look a bit more interesting in the week ahead. Monthly trade figures are released on Tuesday and on Wednesday it’s the always-fascinating international travel and migration statistics. Also on Wednesday, the ANZ business survey will show if business confidence has picked up from the year-end slump which took the headline number down to -37.8 in December. They are not a market mover, but your author always enjoys the colour and detail provided by the international visitor arrivals figures which are out on Friday; so important for all those whose livelihoods depend on tourism and discretionary spending from overseas. <br><br> Speaking of overseas visitors, it has been announced that former US president Barack Obama is to visit New Zealand for the first time next month. Obama will speak to about 1000 invited guests at an event run by the NZ-US Council in Auckland on March 22, spending about three days in the country, before going on to Sydney. Prime Minister Jacinda Ardern welcomed confirmation of the trip. "I look forward to welcoming Mr Obama to our country and anticipate meeting him once his full programme is finalised," she said in a statement. The New Zealand Dollar opens in Asia this morning having ended last week at USD0.7290 and AUD/NZD1.0740.

AUD

Expected Range

The Australian Dollar moved lower last week, in part due to early weakness in global stock markets, in part due to higher volatility across asset classes and in part also to incoming news on the RBA and wage costs. Overall, the AUD began the week at USD0.7910 and moved lower almost without interruption to 0.7790 on Thursday morning in Sydney. A subsequent rally as stock markets jumped took the pair up to 0.7855 but it then slipped steadily through the Northern Hemisphere on Friday to end the week around 0.7840. <br><br> The wide split of views on the Australian Dollar is well-illustrated by a Google search. The top four articles on the news function are headed ‘Australian Dollar is a sell but a risky one’, ‘Australian Dollar is on the ropes but can still triumph in 2018’, ‘Buying Australian Dollars an attractive way to bet against US Dollar’ and ‘Australian Dollar likely to be pulled one way by China, another by US’. That selection of headlines pretty much covers all bases; the AUD is either going up, or down, or both at the same time! <br><br> For the week ahead, and away from the obvious influence of ever-volatile stock markets, the two main drivers for the AUD are likely to be domestic economic news flow and China’s PMI figures. There have been some signs of hardening in China’s attitude to credit creation and its currency has been allowed to appreciate against the US Dollar. On Wednesday and Thursday, we get the official and private sector PMI survey numbers which will be watched closely for any signs of slowdown; albeit against a backdrop of continued global strength. At home, Thursday brings the two Australian manufacturing PMI surveys and the Q4 Private Capital Expenditure numbers which will feed directly into the following week’s GDP estimate. The Australian Dollar opens in Asia this morning having closed on Friday evening in New York at USD0.7840, with AUD/NZD at 1.0740 and GBP/AUD1.7820.

AUD / CAD

Expected Range

The Canadian Dollar didn’t have a great week, though it was rescued to some extent by stronger than expected inflation numbers in the very last trading session of the week on Friday. USD/CAD opened on Monday morning at 1.2560 and after a very brief dip lower in the Asia time zone that day (in line with all the non-USD FX majors) it moved all the way up to a high of 1.2745 in North America on Thursday; a new high for 2018 and the highest level since December 26th last year. On Friday the CAD rallied back onto 1.26 and ended the week around 1.2630, having at one point come within a quarter of a cent of parity against the Aussie Dollar. <br><br> On Friday, the annual inflation rate was reported at 1.7% in January, down from 1.9% in December but above consensus forecasts for 1.4%. The Bank of Canada’s three measures of core inflation were less muted, with CPI common, which the central bank says is the best gauge of inflation, rising to 1.8%, the highest since April 2012. Transportation costs rose 3.2% from a year ago, moderating from the previous month’s pace as price gains for gasoline and autos decelerated. But food prices were up 2.3%, the largest gain since April 2016, as Canadians paid more for food at restaurants as well as fresh fruits and vegetables. Interest rate markets expect the BoC to make no change at its next policymaking meeting in March but another rate hike is fully priced in by July. <br><br> The seventh round of talks on NAFTA renegotiation begins in Mexico City. According to Reuters, talks are running behind schedule although some officials believe the longer they last, the less likely it is that Trump will dump NAFTA, which he has threatened to do if the overhaul of the accord does not benefit the United States. Negotiators had wanted to wrap up talks by March to avoid them being politicised by Mexico’s July presidential election. But officials have already raised the possibility that they will run past Mexico’s vote, and some say they could continue at a technical level for several months if necessary. A US official noted, “there has never been a hard deadline”, and among Mexicans following the process, belief is growing that lobbying efforts by US business leaders and politicians to preserve NAFTA has been gaining traction. Back home in Canada on Tuesday afternoon, Finance Minister Bill Morneau will table his government’s third federal budget in the House of Commons. The Canadian Dollar opens in Asia this morning, having closed in North America on Friday at USD/CAD1.2630, AUD/CAD0.9905 and GBP/CAD1.7650.

AUD / USD

Expected Range

For most of last week, the US Dollar’s fortunes largely mirrored those of the main US equity indices. At times when stock markets were rallying, the USD had an observable tendency to sell-off, whilst any sign of stress in equities had the opposite effect, leading to something of a safe-haven bid. The 2018 low point for the USD index came back on Friday February 16th at 87.95. As the stock market sold-off on Monday, Tuesday and Wednesday last week – culminating in a sharp dive lower after the FOMC Minutes – so the USD index rose to a best level for the week of 89.85; a 10-day high. On Thursday, stocks recovered and the USD fell (no surprise there) but on Friday the inverse relationship seemed to break down somewhat. Equity index futures were up almost the whole day but the USD was little moved, ending the week only a down three or four-tenths from Thursday’s best level. <br><br> There had been some talk that the Minutes of the January 31st FOMC meeting might be used to steer the market towards expecting four rate hikes this year, rather than the median of three which had been signaled in the December ‘dot-points’ and the 2.82 hikes which were reflected in market interest rate pricing. That didn’t really happen, even though stock markets at that point back in January hadn’t yet started the dramatic decline which began after the labour market and average earnings numbers on Friday February 2nd. Of course, we now have a new Fed Chairman and this week will be his first semi-annual monetary policy testimony to Congress. Most of the published calendars for this week will show this being on Wednesday but it has in fact been moved forwards 24 hours to 10am Tuesday, apparently because the casket of preacher Billy Graham will be lying in state in the Capitol Rotunda for two days from February 28th; only the fourth ever private citizen to do so. <br><br> As well as Jerome Powell’s testimony, there is a raft of US economic data scheduled for release this week, although the first Friday of the month of March won’t bring the payroll numbers due to the Presidents Day holiday late in the already-short month of February. Tuesday brings wholesale inventories, the advanced goods trade balance, durable goods, and consumer confidence; the first three of which will all feed directly into the Atlanta Fed’s GDPNow model. Wednesday is the Chicago NAPM and existing home sales, whilst Thursday brings the personal income, expenditure and deflators as well as the ISM manufacturing survey. There’s scope for plenty of volatility around each of the data prints, though the tone and content of Mr Powell’s remarks will be key ahead of the March 22nd FOMC meeting. The USD index opens this morning in Asia having closed at 89.50; more than 1½ points up from its 2018 low.

AUD / EUR

Expected Range

The euro had a poor week. Its 2018 high of USD1.2550 came back on Thursday February 15th. The EUR opened last Monday morning already almost 1½ cents down from this level at 1.2410 and by Thursday morning it had fallen all the way down to 1.2265; the lowest in almost 10-days. In part, this was driven by a weaker US stock market which boosted the US Dollar, but it was also the first week of the year in which Eurozone economic data were by quite a margin softer than consensus expectations. <br><br> The ZEW survey of the current economic situation in the eurozone’s largest economy slipped more than expected in February to 92.3. The headline Markit Eurozone PMI fell from 58.8 in January to 57.5, according to the flash estimate, which is based on approximately 85% of usual final replies. Markit noted that, “By country, growth in Germany came in at a three-month low, while in France the composite PMI moderated to the weakest for four months. Completing a trifecta of disappointing numbers, the ifo reported, “Germany’s very favourable business climate cooled down considerably this month. The ifo Business Climate Index fell to 115.4 points in February from 117.6 points in January. After the euphoria of recent months, companies’ assessments of the business outlook for the months ahead were also far less optimistic. In manufacturing the index fell considerably from last month’s record high”. <br><br> It’s only a few days since we had the final Eurozone CPI numbers for January and after the shortest month of the year it’s already time for the ‘flash estimate’ for February which will be published on Wednesday. The final PMI numbers are out on Thursday, when we’ll also see all the Eurozone countries which are not covered in the mid-month flash. Before then, Bundesbank President Jens Wiedmann will be presenting the institution’s annual report. A fascinating account of a wide-ranging lunch with Mr Weidmann and the FT’s Frankfurt bureau chief was published in this weekend’s Financial Times. Its author, Claire Jones, reported, “Weidmann contents himself with offering lukewarm praise for Draghi, while echoing a view I have heard on countless occasions in Germany that the ECB has done too much to bail out weaker members of the eurozone. “The ECB [is] certainly an institution that functions well,” he says. “But this cannot be an argument for us to take over the role . . . of governments.” The EUR opens in Asia this morning having ended the week at USD1.2295, AUD/EUR0.6375 and NZD/EUR0.5930.

GBP / AUD

Expected Range

The GBP ended the week lower against the USD and twice finished at the bottom of our one-day performance tables. The low point came on Thursday morning London time around 1.3875 and though it recovered on Friday, GBP/USD could not get back on to a 1.40 ‘big figure’. As the fortunes of the GBP are just as closely linked to Brexit as to incoming economic data, the intra-day swings in the British Pound are something that businesses and investors are unfortunately going to have to live with for some time to come. <br><br> In economic news, UK growth in the fourth quarter of last year was last week revised down to 0.4%, from an initial estimate of 0.5% whilst annual growth for 2017 as a whole is down from 1.8% to 1.7%. It means the UK is at the bottom of the G7 pack with average growth in 2017, back below Japan and Italy (Canada doesn’t report Q4 figures until March 2nd). Despite the softness of incoming data, policymakers are still talking up the prospect of further rate hikes. An interview in the Sunday Times reveals that the newest MPC member, Terry Ramsden, who was one of the two doves to vote against a rate hike in November, has now changed his mind. “There does seem to me more impetus on wages. We all will keep a close eye on what happens through the early part of this year to see if that forecast [in a Bank survey] of wage growth picking up to 3% is realised. But certainly relative to where I was, I see the case for rates rising somewhat sooner rather than somewhat later… “The economy has a lower speed limit than it did. We already had a productivity growth puzzle, but Brexit has reinforced things.” <br><br> On the never-ending Brexit saga, Prime Minister Theresa May issued a weekend statement saying, “Delivering the best Brexit is about our national future, part of the way we improve the lives of people all over the country. The decisions we make now will shape this country for a generation. If we get them right, Brexit will be the beginning of a bright new chapter in our national story.” She will hold a special cabinet meeting on Thursday to get sign off on the plans discussed at last week’s ‘offsite’ before a speech publicly setting out her position on Friday, expected to be in Newcastle. For all the brave and upbeat talk, it is clear to everyone that the real decisions on Brexit are going to be made in Brussels. European Council President Donald Tusk spoke about 'Brexit' in talks with media on Saturday. He warned the British government that Brussels would not accept what he views as cherry picking. "If the media reports are correct, I am afraid the UK position today is based on pure illusion." The pound opens in Asia this morning after ending last week at USD1.3970, GBP/AUD1.7815 and GBP/NZD1.9155.

By Nick Parsons

Aussie Dollar goes from bottom to top spot as US stocks rally. GBP weaker, but CAD weaker still. Volatility seems here to stay for a while.


AUD / CAD

Expected Range

The Canadian Dollar has weakened steadily over the past week, not just against a rebounding US Dollar. On Thursday morning, USD/CAD moved on to 1.27 ‘big figure’; a fresh high for 2018 and the best level since December 26th last year. After the latest retail sales numbers were released, the CAD fell further. USD/CAD hit a high of 1.2740 whilst AUD/CAD is now less than a quarter of a cent from trading at parity. <br><br> Stats Canada reported that after three consecutive monthly increases, retail sales decreased 0.8% in December. Sales fell in 6 of 11 subsectors, representing 42% of retail trade. Lower sales at general merchandise; health and personal care; and electronics and appliance stores more than offset gains at motor vehicle and parts dealers and food and beverage stores. Excluding motor vehicle and parts dealers, retail sales fell an even bigger -1.8%m/m. There’s no doubting that these numbers were considerably worse than the +0.2% m/m consensus, but retail sales were up 1.5% in the fourth quarter and up 6.7% for the year. <br><br> Local analysts said the disappointing reading put the economy on track for growth of about 2 percent in the fourth quarter, below the Bank of Canada’s 2.5 percent forecast. Statistics Canada will release fourth-quarter growth figures next week. The market-derived probability that the BoC will remain on hold at its March 7th meeting rose to 96% , though another rate hike is still fully priced in by July. The Canadian Dollar opens in Asia this morning at USD/CAD1.2710, AUD/CAD0.9970 and NZD/CAD0.9340.

AUD / EUR

Expected Range

The euro has had a pretty lively 24 hours. It jumped to 1.2355 on the Fed Minutes before plunging to a low early in Thursday’s European morning of 1.2260. As stock markets recovered and the USD gave back some of its recent gains, so the EUR first stabilised then jumped around three-quarters of a cent as the daily gains for the DJIA exceeded 300 points. <br><br> Investors have grown used to a steady stream of good and better than expected economic data in the Eurozone. There were the first cracks in this narrative with Wednesday’s ZEW Survey and yesterday morning’s ifo survey was a genuine disappointment. The institute noted, “Germany’s very favourable business climate cooled down considerably this month. The ifo Business Climate Index fell to 115.4 points in February from 117.6 points in January. Companies were less satisfied with their current business situation, but the indicator was at its second highest level since 1991. This signals economic growth of 0.7 percent in the first quarter. After the euphoria of recent months, companies’ assessments of the business outlook for the months ahead were also far less optimistic. In manufacturing the index fell considerably from last month’s record high. Assessments of the current business situation were slightly less favourable, although they remained at a high level. Manufacturers also downwardly revised their business expectations. They reported a marginal slow-down in demand and slightly lower order levels.” <br><br> The Minutes of the ECB Council Meeting said, “Some members expressed a preference for dropping the easing bias regarding the APP from the Governing Council’s communication as a tangible reflection of reinforced confidence in a sustained adjustment of the path of inflation… However, it was concluded that such an adjustment was premature and not yet justified.” Mr Draghi’s views on FX at the Press Conference were widely shared among Council members. “Concerns were expressed about recent statements in the international arena about exchange rate developments and, more broadly, the overall state of international relations…The importance of adhering to agreed statements on the exchange rate was emphasised.” An unusually extensive discussion of FX said, “It was also pointed out that the bilateral exchange rate of the euro against the US dollar had changed more than the euro's nominal effective exchange rate... However, explaining the US dollar weakness was not straightforward, given the strength of recent data releases and the fiscal and monetary policy outlook in the United States”. Friday’s Eurozone CPI numbers might show s the extent to which a stronger euro is still weighing on prices. The EUR opens in Asia this morning at USD1.2335, AUD/EUR0.6365 and NZD/EUR0.5960.

AUD

Expected Range

Intra-day movements across asset classes are becoming more volatile, less predictable, and often occurring with little obvious catalysts. Did yesterday’s FOMC Minutes really warrant a 400 point drop in the Dow Jones Industrial Average? And if the answer is ‘yes’, then why did the same index rally 300 points the very next day on absolutely no fresh news or information? We may have to live with such swings for some time to come, and factor them into our decisions on when and how to execute our currency transactions; whether they be for hedging, investment or simply recreational cross-border expenditure such as vacations. As a good example of this volatility, after Wednesday when the AUD was the worst performer of all the major currencies we follow here, Thursday saw it back at the top of the table. Higher stocks and lower market-based measures of risk such as the VIX index help explain the AUD rally, but anyone who claims to know the precise reason that equities fell then rallied is guilty of merely fitting a story to the price action. <br><br> With that rant off your author’s chest, we note that Prime Minister Turnbull is scheduled to meet with US President Trump in Washington. This will be his fourth meeting with Mr Trump and he will be accompanied on this trip by four of Australia's six state premiers, other local leaders and 20 CEOs of the nation's largest companies. Briefing journalists ahead of the trip, an unnamed Australian official said, “The prime minister is travelling with a large delegation of business leaders and he is very keen to talk trade opportunities, while China will obviously be an important element of the talks". Mr. Turnbull is still keen to promote the Trans-Pacific Partnership, the official said, even though it is likely to receive a lukewarm reception from Trump who last year withdrew the United States to concentrate on protecting US jobs. <br><br> According to the Sydney Morning Herald, “Prime Minister Malcolm Turnbull will propose using a chunk of Australia's $2.53 trillion superannuation pool to help unlock funding for Trump's infrastructure push. "There's a very bold ambition to drive US infrastructure and Australia should be front and centre in terms of project design, build, financing and management," Trade Minister Steven Ciobo said in an interview ahead of the visit. It is certainly an area in which Australia has proven expertise but if it raises concerns about capital outflows to finance overseas projects, it could end up being another short-term marginal negative for the currency. The Australian Dollar opens in Asia this morning at USD0.7845, with AUD/NZD at 1.0685 and GBP/AUD1.7790.

AUD / USD

Expected Range

We warned earlier in the week that whilst we couldn’t be sure of the direction of causality between stocks and the US Dollar, the correlation was very strong. 700 points off the DJIA from last Friday’s high added a little over 2 points to the dollar’s index against a basket of major currencies, which yesterday morning traded up to 89.85; its highest in almost 10 days. As the Dow Jones then added 350 points by the time London traders left for home, so the USD index gave back around half a point of its recent gains. All that currency traders have to do is to figure out where stock markets are going! <br><br> St. Louis Federal Reserve President James Bullard cautioned that investors may be "getting ahead of themselves" in anticipating four rate hikes from the central bank this year. Speaking with CNBC Television, Bullard said he doesn't see the case for a 1.2% increase in the Fed Funds rate this year, adding that "one hundred basis points in 2018 seems a lot to me." He also said there was a "ways to go" with respect to sustainable upward move on inflation and reiterated the view that US GDP will likely grow between 2.4% and 2.5% this year. Fed Governor Randal Quarles, meantime, gave a speech in Tokyo saying, “The U.S. economy appears to be performing very well and, certainly, is in the best shape that it has been in since the crisis and, by many metrics, since well before the crisis… With a strong labor market and likely only temporary softness in inflation, I view it as appropriate that monetary policy should continue to be gradually normalized." <br><br> The US economic calendar is empty on Friday which might not be a bad thing given the volatility seen already in this holiday-shortened week. The USD index opens this morning in Asia around 89.30; down almost half a point from Thursday’s high but still 1 ½ points up on where it was this time last week.

GBP / AUD

Expected Range

Mornings have not been kind to the British Pound this week and by lunchtime in London on Thursday, it was down against all the major currencies and for the third time this week looked set to take bottom spot on our one-day performance table. It had very briefly regained USD1.40 for a few minutes after the FOMC Minutes were released but then began to fall sharply and couldn’t subsequently hold on to a USD 1.39 ‘big figure’, reaching an intra-day low yesterday of USD1.3860. The sharp rally in the US stock market helped lift GBP/USD up almost a cent from its low and the GBP finished the day up against USD and CAD but down against EUR, AUD and NZD. <br><br> In economic news, UK growth in the fourth quarter of last year has been revised down to 0.4%, from an initial estimate of 0.5% whilst annual growth for 2017 as a whole has also been revised down a little, from 1.8% to 1.7%. details showed that business investment was flat in Q4 and household spending rose by just 0.3% during the quarter, which means it only grew by 1.8% last year. A tenth or so off the GDP numbers doesn’t sound much but in terms of presentation it is very important. It means the UK is at the bottom of the G7 pack with average growth in 2017 back below Japan and Italy (Canada doesn’t report Q4 figures until March 2nd). <br><br> UK Government Ministers headed away on Thursday for a Cabinet ‘offsite’ meeting on Brexit, to discuss the ‘position paper’ which we wrote about here yesterday. In what is understood to be the Prime Minsiter’s preferred model, the UK would be in regulatory alignment with the EU in some areas while finding different ways to achieve the same outcomes in other sectors. In the so-called ‘third basket of sectors’, the UK would in time diverge from the EU and go its own way under the model. If that sounds an elaborate fudge, that’s because it is! The EU have spotted it too and a European Commission document timed to coincide with the meeting says, “The UK views on regulatory issues in the future relationship including ‘three basket approach’ are not compatible with the principles in the [European council] guidelines.” Oh well, maybe the government enjoyed the tea and sandwiches at Chequers. The pound opens in Asia this morning at USD1.3955, GBP/AUD1.7790 and GBP/NZD1.8900.

AUD / NZD

Expected Range

The NZD/USD has been on a US 73 cents ‘big figure’ for every minute of the past 24 hours, despite a 450-point drop and subsequent 300-point rally in the main US stock market index. The pair has bounced three times off the 0.7310 level and reached a high during the European afternoon just above 0.7360; an unusually tight high-low range given the big swings in global equities. The AUD/NZD cross, meantime, remains below last week’s 6-month low of 1.0705, having been down to 1.0655; the lowest since August 4th last year. <br><br> Data from the Reserve Bank of New Zealand show total credit card spending in New Zealand decreased for the first time in five months in January. Credit card spending dropped 0.6% month-over-month in January, fully reversing a 0.6% rise in December. The numbers also showed that credit card balances increased at a slower pace of 0.2% in January, following a 0.4% rise in the preceding month. The good news is that credit card users are making much more of an effort to pay balances more promptly. As at December 2017, 60.4% of all balances incurred interest. That is the lowest level ever recorded since this data started in July 2000. Just one year ago it was 62.2%, and five years ago it was 64.8%. It peaked at 76.1% in January 2001. <br><br> Separate data from Stats NZ show labour productivity rose 0.9 percent in the year ended March 2017. Setting aside for a moment the irony of publishing productivity figures 10 months after the quarter-end, the statisticians’ Press release was punchily titled, “More New Zealanders working, and working smarter” and the details showed that New Zealand workers could produce 133 units of goods or services each hour in 2017, compared with 100 an hour 20 years ago. In the long run, productivity is regarded as key to increasing standards of living – as workers share the fruits of their labour. By producing more for each hour worked, Stats NZ helpfully explains, their incomes may rise and the country becomes wealthier. The New Zealand Dollar opens in Asia this morning at USD0.7345 and AUD/NZD1.0685.

By Nick Parsons

AUD was Wednesday’s worst performing currency as RBA rate hike forecasts continue to be pared back. US stocks liked the FOMC Minutes so USD gave back some of its gains.


AUD / NZD

Expected Range

The NZD/USD pair continues to edge slightly lower and has now extended its decline from Friday’s 0.7434 high to more than a full cent. However, the Kiwi’s drop against a very strong US dollar is not the main story. Instead, the big event is the continued decline in the AUD/NZD cross which has fallen below Friday’s 6-month low of 1.0705, and has been down to 1.0665; the lowest since August 4th last year. <br><br> The New Zealand Government yesterday published a weighty report on the economic impact of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). The 243-page National Interest Analysis (NIA) estimates the economy would grow between 0.3% and 1% more than if TPP had not existed, with exporters enjoying better access to new markets such as Japan, Canada and Mexico. The NIA estimates tariff savings of $222.4 million in savings annually once fully implemented, with $95.1 million of those savings starting as soon as the deal enters into force. The agreement would also help reduce non-tariff barriers, though the potential benefits are harder to quantify. The report estimates they could range between $363 million to $1.2 billion. Trade Minister David Parker said it supported New Zealanders' jobs and income and protected national sovereignty although the National Party said it has yet to formally decide whether to support the newly renegotiated TPP trade deal. <br><br> According to the Ministry of Foreign Affairs and Trade's estimates, the less than snappily-named CPTPP is expected to produce between a $1.2b and $4b boost to New Zealand's real GDP. The dairy industry alone is expected to save nearly $86 million in tariffs and the country's exporters would save about $200m in reduced tariffs to just Japan once the reductions are fully implemented. Coming after the latest Global Dairy Trade auction showed the first fall in prices this year, the government report is a reminder of the huge economic importance of that sector. The New Zealand Dollar opens in Asia this morning at USD0.7355 and AUD/NZD1.0670.

AUD / USD

Expected Range

The US Dollar continues to trade pretty much inversely to stock markets, with its 3-day winning streak since Friday coming as the DJIA moved from a high of 25,370 down to a low on Wednesday morning of 24,910. Over this period, the USD index against a basket of major currencies rose from 88.00 to a high yesterday just over 89.60. After the release of the Minutes of the January 31st FOMC meeting, the DJIA jumped 250 points and it was thus no great surprise to see the USD give back some of its gains with the index down around half a point from its earlier highs. <br><br> There had been some talk that the Minutes might be used to steer the market towards expecting four rate hikes this year, rather than the median of three which had been signaled in the December ‘dot-points’ and the 2.82 hikes which were reflected in interest rate pricing. This didn’t really happen. For sure, “A majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate" and FOMC voters agreed to add word "further'' in front of gradual increases because of the stronger economic outlook. A number of FOMC participants indicated that they had raised their forecasts for economic growth in the near-term vs their December estimates and the impact of recent tax cuts "might be somewhat larger in the near term than previously thought''. Nevertheless, "Participants generally noted few signs of a broad-based pickup in wage growth in available data" and some participants saw “an appreciable risk that inflation would continue to fall short of the committee's objective'' and judged the FOMC "could afford to be patient". <br><br> As ever, there’s something for everyone in the Minutes and you can nearly always find what you’re looking for to support any particular view. On the whole, however, there’s nothing too scary for asset markets and nothing to suggest that either the pace or scale of future rate hikes is to be accelerated. As equity markets took on board this message from the Minutes, the USD index opens this morning around 89.35; down almost half a point from its high but back only to where it was at this time on Wednesday.

AUD / EUR

Expected Range

Having been bottom of our one-day performance table on Tuesday, the EUR edged further lower on Wednesday with EUR/USD falling to a one-week low just a few pips above 1.2300 ahead of the release of the FOMC Minutes. The EUR was unchanged against the CAD and GBP, fell against the USD and NZD but rose against the AUD. <br><br> In economic data, Eurozone business activity continued to rise at a decent pace in February, albeit with the rate of expansion cooling from the near 12-year high recorded in January. Price pressures and employment growth also remained elevated, though likewise saw rates of increase ease slightly. Business optimism about the coming year meanwhile ticked higher. The headline Markit Eurozone PMI fell from 58.8 in January to 57.5 in February, according to the flash estimate, which is based on approximately 85% of usual final replies. Markit noted that, “By country, growth in Germany came in at a three-month low, while in France the composite PMI moderated to the weakest for four months. However, in both cases the PMI readings remained at levels indicative of strong growth, close to recent seven-year highs. Business activity growth meanwhile also slowed across the rest of the eurozone, though still registered the second-largest expansion in nearly 12 years… At the eurozone level, the goods-producing sector continued to record a faster pace of expansion than the service sector, though growth of output and new orders slowed in both cases. However, both sectors continued to enjoy the best periods of expansion seen for seven years.” <br><br> Currency markets have historically never been bothered with Minutes of the ECB Council Meetings but it was the last set of Minutes published on January 11th which dropped the bombshell about the need to change the language around monetary policy. EUR/USD was trading down at 1.1950 at the time and it was this – rather than anything Mr. Mnuchin said at Davos – which really sent the euro soaring. Today’s Minutes of the January24-25th meeting will be very closely watched this time around ahead of Friday’s Eurozone CPI numbers. The EUR opens in Asia this morning at USD1.2325, AUD/EUR0.6360 and NZD/EUR0.5970.

AUD / CAD

Expected Range

The Canadian Dollar has spent the whole of the last 24 hours on a USD/CAD1.26 ‘big figure’ on the combination of Tuesday’s disappointing wholesale trade numbers and a generally stronger US Dollar. Indeed, yesterday morning in North America, USD/CAD traded as high as 1.2680; a fresh high for 2018 and the best level since December 27th last year. <br><br> Away from the regular round of incoming economic statistics, some of which sometimes seem to generate more noise than genuine insight, Statistics Canada have released the preliminary year-end tourism figures for 2017. The results show last year was the best-ever year on record for international visitors to Canada. During the year of Canada 150 celebrations, international tourists made 20.8 million trips of one or more nights to Canada, up 4.4% from 2016 and a new annual record, surpassing the previous record of 20.1 million set in 2002. The number of US tourists rose 3.1% in 2017 to reach 14.3 million, the highest figure since 2005. There were also a record 6.5 million tourists from overseas countries, up 7.2% from 2016. Compared with the previous 2002 record, a greater share of tourists to Canada in 2017 were from countries other than the United States, the result both of declines in tourism from the United States and an increase in the number of tourists from overseas. <br><br> According to an official Press release, “The Government of Canada is committed to growing Canadian tourism. This includes making key investments through Budget 2017 and launching Canada's New Tourism Vision. The Vision aims to increase the number of international tourists to Canada by 30 percent by 2021, double the number of Chinese visitors by the same year, and position Canada to compete for a top 10 destination ranking by 2025. It also includes actions to grow culinary tourism and support Indigenous tourism.” Back to the regular round of economic data, we have official data on retail sales today then on Friday it’s earnings, hours worked and the CPI numbers. The Canadian Dollar opens in Asia this morning at USD/CAD1.2655, AUD/CAD0.9930 and NZD/CAD0.9310.

AUD

Expected Range

Lower stocks, a lower gold price and higher volatility made for a difficult background for the Aussie Dollar even before we factor in the RBA’s pretty dovish set of Minutes earlier in the week. AUD/USD has remained below 0.7900 ever since lunchtime in New York on Tuesday. Yesterday in Asia it broke through Friday’s low, which turned the technical picture much more negative and dragged the AUD/USD pair down to a one-week low of 0.7830. Indeed, by the close of business in the Northern Hemisphere on Wednesday, the AUD was the worst performer of all the major currencies we follow here, even as a surge in equity markets after the FOMC Minutes helped lift AUD/USD almost a quarter of a cent off its lows. <br><br> The Australian Bureau of Statistics reported yesterday that its wage price index grew by 0.55% over the December quarter in seasonally adjusted terms, leaving the change on a year earlier at 2.08%. Markets had been expecting a quarterly gain of 0.5%, seeing the year-on-year rate hold steady at 2.0%, so the data was marginally better than consensus. Most of the increase was due to increases in pay for government employees - mainly in the health industry and education - while private sector pay, which accounts for the majority of workers, remained weak at just over 1.9%. Rises through the year in the public sector ranged from 1.9% for Professional, scientific and technical services to 2.9% for Health care and social assistance and public sector pay has now outpaced that in the private sector for the past four years. <br><br> We’ve focused here over the past week on the split of view on interest rates amongst the ‘Big Four’ Aussie banks. From an offshore perspective, albeit a local author, Capital Economics say, “We suspect that wage growth will creep ever so gradually higher as the unemployment rate edges lower and spare capacity is used up, but it may still just be around 2.2 to 2.3% by the end of this year and perhaps only 2.5% by the end of next year… Wage growth is unlikely to significantly boost household income growth or underlying inflation this year at least, [and] until that changes, the RBA isn’t going to raise interest rates.” The Australian Dollar opens in Asia this morning at USD0.7850, with AUD/NZD at 1.0670 and GBP/AUD1.7795.

GBP / AUD

Expected Range

Tuesday was the day when the GBP fell to the bottom and rose to the top of our table but Wednesday it went from bottom to top then almost all the way back down again, ending the day up only against the friendless Aussie Dollar. GBP/USD hit a low around lunchtime in Europe of just 1.3910 as investors focused on Brexit uncertainties and soft-ish set of UK unemployment figures. As BoE Governor Carney and three MPC colleagues then gave evidence to Parliament on the quarterly Inflation Report, so the GBP recovered to almost 1.3990 as rate-hike headlines hit the newswires. But, on the realisation that none of this was actually fresh news, and reports emerged of further splits between the UK and Brussels, the GBP then shed half a cent into the London close. <br><br> In economic news, the UK unemployment rate ticked up to 4.4% in the three months to December, up from 4.3% (a four-decade low) and the number of people out of work rose by 46,000 to 1.47 million. But, the number of people in work also rose, by 88,000 during the quarter, to 32.147 million. The one-tenth rise in the unemployment rate was the first increase in two years but there was a 109,000 fall in the number of people classed as economically inactive, which helped lift the jobless rate. Only a couple of weeks ago, the Bank of England expectation was for an unemployment rate of 4.3%, a slight drop to “around 4.25%” up until Q3 and a further drop to 4.1% by the first quarter of 2021. <br><br> Later in the day, newspapers began to publish leaked details of a so-called ‘position paper’ which the UK Government has shared with EU member states. The document appeared to leave open the possibility of an open-ended transition. “The UK believes the period’s duration should be determined simply by how long it will take to prepare and implement the new processes and new systems that will underpin the future relationship,” the draft paper said. “The UK agrees this points to a period of around two years, but wishes to discuss with the EU the assessment that supports its proposed end date”. According to the Financial Times, “The paper contradicts some key EU negotiating principles and raises the risk of failing to reach a transition deal before a March summit of EU leaders… As the fortunes of the GBP are just as closely linked to Brexit as to incoming economic data, the intra-day swings in the British Pound look set to continue for some time. It opens in Asia this morning at USD1.3965, GBP/AUD1.7795 and GBP/NZD1.8990.

By Nick Parsons

Minutes show RBA in no rush to do anything. USD rallies further as stocks fall. EUR was Tuesday’s worst performer.


AUD

Expected Range

The Aussie Dollar continues to be extremely sensitive to moves in global stock markets, as well as to more local influences such as the RBA Minutes. Whilst on Monday it was able to hold onto a US 79 cents handle and thus remain above Friday’s 0.7895 low, yesterday the AUD appeared far more fragile. From a high in the Sydney session of 0.7925, AUD/USD lost almost half a cent as US equities remained in the red; with a headline-grabbing decline of almost 10% for Walmart during the New York morning. The pair did climb briefly back on to 79 cents later in the day but with gold down more than 1% to $1331, the AUD is now beginning to face into some headwinds and closed in the high 78’s. <br><br> After leaving interest rates unchanged for 16 consecutive months, the Minutes of the February RBA Board signaled more of the same ahead. Business conditions remained at a relatively high level and prospects for non-mining investment “were more positive than they had been for some time” but strong retail competition has exerted downward pressure on consumer goods and food for some time and was expected to persist “in the next few years”. Indeed, “members noted that food prices, excluding fruit and vegetables, had been little changed for nearly a decade”. After all the warnings from the Governor and Deputy Governor in recent speeches, the Minutes reiterated that, “There was still a risk that growth in consumption might turn out to be weaker than forecast if household income growth were to increase by less than expected. In an environment of high household indebtedness, consumption might be particularly sensitive to adverse developments in household income or wealth”. <br><br> We’ve mentioned here previously the split of views on rates this year between CBA and NAB. The standout call on Australian interest rates, though, is still the one from Westpac which notes, “Given our long-held view that rates would remain on hold in 2018, we were encouraged to note that the minutes point out financial market pricing suggested that market participants expected the cash rate to remain unchanged during 2018 but had priced in a 25bps increase by early 2019. Neither the Bank nor the markets are onside with our call for steady policy in 2019 as well, but a continuation of this benign inflation environment, weak consumer and softening housing markets could easily convince the Bank of our case.” Today’s quarterly wage prices are now hugely important. The last set of numbers in November showed a +0.5% q/q increase to leave the annual rate at 2.0%; well-below its long-run average around 3¼%. Consensus looks for a similar pace of growth in the Q1 data. The Australian Dollar opens in Asia this morning at USD0.7890, with AUD/NZD at 1.0730 and GBP/AUD1.7735.

AUD / EUR

Expected Range

The euro made a recently-rare appearance at the bottom of our one-day performance table on Tuesday as investors began to note the German political concerns we first highlighted here yesterday. EUR/USD opened in Sydney around 1.2410 but it was a one-way street all the way down to a low around lunchtime in Europe of 1.2325; the lowest since Wednesday last week. <br><br> In economic news, the ZEW survey of the current economic situation in the eurozone’s largest economy slipped more than expected this month to 92.3, although the latest assessment of Germany’s performance is still the second-highest reading on record. The ZEW indicator is compiled from a survey of banks, insurance companies and in-house finance teams who are asked about their assessments and forecasts for interest rates, stock markets and exchange rates across a clutch of major global economies. It is obviously more prone to influence from short-term market developments and the fall in stock prices during the survey period may well explain much of this month’s decline. <br><br> In a very hard-hitting article for Handelsblatt, former ECB Executive Board Member Jurgen Stark writes that, “the ECB’s policy interest rate has lost its steering and signaling functions. Another is that risks are no longer appropriately priced, leading to the misallocation of resources and zombification of banks and companies, which has delayed deleveraging. Yet another is that bond markets are completely distorted, and fiscal consolidation in highly indebted countries has been postponed. So, the benefits of the ECB’s policy are questionable, and its costs indisputable. The current ECB policy is thus simply irresponsible, as is the utter lack of any plan for changing it”. For Wednesday, the so-called ‘flash PMI’s’ for services and manufacturing are published for France, Germany and the Eurozone. The EUR opens in Asia this morning at USD1.2340, AUD/EUR0.6395 and NZD/EUR0.5955.

GBP / AUD

Expected Range

The GBP began the day as the weakest of all the currencies we follow here but ended up as the strongest on what the US financial news channels might call ’Turnaround Tuesday’. On a day of no official economic statistics (though we did get the CBI monthly survey) GBP/USD initially fell to 1.3940 as nervous investors braced for a speech in Vienna from UK Minister for Exiting the EU, David Davis. By the afternoon, a magazine story claiming the EU Parliament favoured a special deal for a post-Brexit Britain helped push ‘cable’ back up to a high around 1.4020 with gains between half and three quarters of a cent against the AUD and NZD. <br><br> Speaking to Austrian business leaders, Mr. Davis said, “We will continue our track record of meeting high standards after we leave the European Union. Now, I know that for one reason or another there are some people who have sought to question that our intentions. They fear that Brexit could lead to an Anglo-Saxon race to the bottom, with Britain plunged into a Mad Max-style world borrowed from dystopian fiction. … these fears about a race to the bottom are based on nothing – not history, not intention nor interest.” In a totally separate event, after a speech to manufacturers’ organisation the EEF, Opposition Labour party leader Jeremy Corbyn said: “We have to have access to European markets, we have to have a customs union that makes sure we can continue that trade, particularly between Northern Ireland and the Republic of Ireland. That is key to it.” <br><br> According to an ‘exclusive’ report in Business Insider magazine, the European Parliament is putting together a 60-paragraph document outlining its desire for an "association agreement" with post-Brexit Britain, in a break from the position of the chief EU negotiator Michel Barnier. The European Parliament is pushing for a future relationship with the United Kingdom which could allow for Britain to retain "privileged" access to the single market. This marks a break from the direction previously taken by the EU's negotiating team, which has instead suggested that Theresa May's negotiating red lines mean Britain may only have access to a Canada-style free trade deal. It is claimed the EU Parliament currently plans to put the resolution to its Brexit Steering Group around March 8, before it is adopted at a meeting of all MEPs, also known as a plenary, in mid-March. This report lifted the GBP almost three-quarters of a cent from its morning, though we might not have to wait long until it is completely disowned or contradicted by official EU sources. The pound opens in Asia this morning at USD1.3995, GBP/AUD1.7735 and GBP/NZD1.9040.

AUD / CAD

Expected Range

Having spent the whole European morning on a 1.25 ‘big figure’, USD/CAD then spent the whole of the North American day on 1.26 after a disappointing set of wholesale trade numbers and as nerves begin to grow ahead of next Tuesday’s Federal Budget. By the end of the day, it was a close-run thing at the bottom of the one-day table, and only a few pips on the CAD/EUR exchange rate kept the Canadian Dollar off bottom spot. <br><br> Statistics Canada reported the value of Canadian wholesale trade dipped 0.5% in December, compared to consensus expectations in a Reuters poll for a monthly increase of 0.4%. Lower sales were recorded in five of the seven subsectors, representing 65 percent of wholesale trade in December, while volumes declined 0.9%. The personal and household goods subsector dropped 3.3% to its lowest level since April 2017 while sales in the miscellaneous subsector fell 2.4% on weakness in the agricultural supplies industry. Taking the calendar year as a whole, wholesale trade in 2017 rose for the eighth year in a row, jumping 9.4%to a new record. The year-over-year increase was the biggest advance since the 13.7% jump in 1997. <br><br> For the rest of this week, we have official data on retail sales on Thursday then on Friday it’s earnings, hours worked and the CPI numbers. The Canadian Dollar opens in Asia this morning at USD/CAD1.2635, AUD/CAD0.9970 and NZD/CAD0.9280.

AUD / NZD

Expected Range

The New Zealand Dollar continued to edge slightly weaker on Tuesday. NZD/USD extended its decline from Friday’s 0.7434 high and at its weakest point during the European afternoon was down almost a full cent from this level. AUD/NZD, meantime, continued to find some buying interest and is now almost 30 pips above Friday’s 6-month low of 1.0705. <br><br> Statistics NZ reported that producer output prices rose 1.0% q/q in the fourth quarter of 2017, in line with expectations and unchanged from the previous three months. Higher output prices were up mainly due to dairy product manufacturing and higher oil prices. Producer input prices were up 0.9% q/q, shy of expectations for 1.0%, which would have been the same rate as Q3. The statisticians noted "Higher crude oil prices led to increased costs for many industries, including petroleum, forestry and logging, transport, construction, and farming." In the year to December 2017, producer output prices increased 4.7% and producer input prices 4.4%. The farm expenses price index increased 2.5%, while the capital goods price index increased 2.6%. <br><br> A separate survey from ASB Bank yesterday showed expectations that house prices will rise are at a six-and-a-half year low. Nationally, expectations that house prices would rise were a net 16% for the three months to December, down from 17% in the three months to October. Details showed expectations that house prices would rise in the South Island had lifted to a net 30% from 29%, led by Canterbury at net 11% up from 8 % previously. Price expectations continued to ease in the North Island to net 20%, down from 23% in the previous survey. The New Zealand Dollar opens in Asia this morning at USD0.7345 and AUD/NZD1.0730.

AUD / USD

Expected Range

The US Dollar had another pretty good day on Tuesday, its movements largely mirroring those of the main US equity indices. At times when stock markets are rallying, the USD has had an observable tendency to sell-off, whilst any sign of stress in equities has had the opposite effect, leading to something of a safe-haven bid. It would be both a huge exaggeration and a mistake to suggest that yesterday’s stock market moves were on the scale of those seen a couple of weeks ago, but that is what currency traders were largely focused on. The USD index against a basket of major currencies rose half a point from 88.90 to an intra-day best level of 89.40, before giving back some of these gains as Wall Street clawed back earlier losses in the NY afternoon. <br><br> The main attention in US markets was in rates and fixed-income as the US has to sell a record amount of debt with three days of auctions of T-bills and notes totaling $258 billion. The 3 and 6-month bill auctions, came at record amounts of $51bn and $45bn respectively but the market had no problems absorbing the massive supply: the 3-month yielded 1.63%, below the 1.64% when-issued price and the 6-month yielded 1.82%, also 1bp below the when-issued price. The 2-year auction, meantime, priced at 2.255%; the highest yield since August 2008, one month before the Lehman bankruptcy. Fed funds futures are fully pricing three 25bp rate hikes and put the probability of the Fed raising rates four times this year at 25 percent versus just 17 percent immediately before last week’s US CPI release. <br><br> The highlight for Wednesday will be the release of the Minutes of the January 31st FOMC; just two days before the 666-point drop for the Dow Jones Industrial Average and the subsequent surge in volatility. Of course, the further 2,000-point drop and similar-scale rally seen over the last two weeks should make any conclusions from the Minutes even more conditional and unreliable as policy signals than they usually are. The USD index opens this morning around 89.35; well above its recent 3-year low of 87.95.

By Nick Parsons

No surprises seen in RBA Minutes today, but can AUD hold on to US 79 cents?


AUD / NZD

Expected Range

The New Zealand Dollar last week touched a fresh 2018 high of USD0.7434 before slipping back to close more than a cent lower at 0.7390, which is where it spent most of Monday before then losing almost half a cent against a generally well-bid US Dollar. A sell-off during the European afternoon took the pair down to 0.7355 before a recovery to the 0.7355 area. Against its Aussie cousin, the AUD/NZD cross couldn’t break Friday’s 6-month low of 1.0705 and moved around a quarter of a cent higher as the day progressed. <br><br> The Bank of New Zealand-Business NZ’s performance of services index (PSI) was published on Monday. It showed growth in New Zealand’s services sector eased in January and new orders fell to their lowest in 10 months. The headline index edged down to 55.8 from 56 in the previous month whilst the sub-index measuring new orders and business fell to 57.6, the first time it had slipped below 60 since April 2017. The authors of the report noted that, “While the PSI is relatively robust, combined with the Performance of Manufacturing Index it nonetheless signals something of a slowing in GDP growth for the near term.” <br><br> Today is another day of inflation numbers. As well as the quarterly PPI data, there’s RBNZ survey of household inflation expectations. This survey often runs higher than the business numbers, and is calculated to only one rather than two decimal points. In the December quarter, household expectations of inflation in one year’s time rose from 2.5% to 3.0%; well above comparable survey results from businesses and professional forecasters. The New Zealand Dollar opens in Asia this morning at USD0.7370 and AUD/NZD1.0730.

AUD / CAD

Expected Range

There’s been lots to digest in the last few weeks for the Canadian Dollar, not least because the world’s second and fourth largest countries by area are facing huge uncertainty over the future of the Free Trade Agreement which has been in place for almost thirty years. With the USD on a weaker trajectory and a huge increase in stock market volatility, the CAD has not been unscathed. Over the past week it ended on net firmer against the US Dollar around 1.2550 but weaker against all the other FX majors with AUD/CAD, for example, up a full cent to 0.9930 and now just 60 pips away from parity. <br><br> Canadian Finance Minister Bill Morneau met on Friday with private-sector economists in Toronto ahead of his upcoming February 27th budget. According to Bloomberg, he said they discussed the impact of US tax changes, as well as ongoing talks to revamp the North American Free Trade Agreement. He declined to say if corporate tax cuts were on the table on this side of the border in the wake of the Trump administration’s tax overhaul. In a letter to Morneau, the Business Council of Canada – which represents chief executives from dozens of major companies – last week said the country “must move quickly to shore up its business tax competitiveness.” They would say that, wouldn’t they… <br><br> The Bank of Canada has raised rates three times since July 2017 and its next monetary policy meeting is on March 8th; two days after the RBA and the same day as the ECB. Money markets are indicating around a 70% probability of another hike by May, but it is not expected to come before then. This week brings official data on retail sales on Thursday then on Friday it’s earning, hours worked and the CPI numbers. Before then, wholesale trade numbers are released today. The Canadian Dollar opens in Asia this morning at USD/CAD1.2560, AUD/CAD0.9940 and NZD/CAD0.9260.

AUD / USD

Expected Range

The US Dollar had another good day on Monday, albeit closing below its best levels seen during the European afternoon. Its index against a basket of major currencies rose on Friday from a low of 87.95 to close around 88.75. Yesterday, it extended these gains up to 89.10 before slipping back to 88.85 as stock index futures lost 100 points then rallied back to flat at the end of the European day. It’s not clear what is the direction of causality here: whether the currency is driving stocks or vice-versa. If the causality isn’t clear, though, the correlation most definitely is and will be something to watch closely as the US returns today from the Presidents’ Day holiday and Chinese investors come back to the market later in the week. <br><br> Though US stocks and the currency seem well-correlated (negatively) the USD still isn’t getting any support from higher bond yields or the expectation of much higher short-term interest rates over the course of this year. Fed funds futures are fully pricing three 25bp rate hikes and put the probability of the Fed raising rates four times this year at 25 percent versus just 17 percent immediately before last week’s US CPI release. The overwhelming narrative amongst bank strategists is that the US Dollar is headed lower, if for no better reason than that is the prevailing trend. <br><br> The highlight of the week ahead will probably be Wednesday’s release of the Minutes of the January 31st FOMC; just two days before the 666-point drop for the Dow Jones Industrial Average and the subsequent surge in volatility. Of course, the further 2,000-point drop and similar-scale rally seen over the last two weeks should make any conclusions from the Minutes even more conditional and unreliable as policy signals than they usually are. But, as we’ve said before, there’s a whole army of Fed-watchers who have to earn their living trying to sort the wheat from the chaff on every sackful of words from the Eccles Building. The USD index opens this morning around 88.85; almost a full point above its recent 3-year low of 87.95.

AUD

Expected Range

As half of Asia and more than half of North America was out for holidays on Monday, it always threatened to be a fairly quiet day for the Australian Dollar and that’s pretty much how it turned out. That’s not to say it was totally uninteresting, and it was noticeable how sensitive the AUD was to moves in US stock index futures – which were open for trading even as cash equities were closed. The high for the day for AUD/USD around 0.7935 came with the DJIA up around 100 points and when the market turned negative in the European afternoon, so too the AUD fell back to just a few pips above 0.7900. Holding on to that psychological level was a positive, and technically it was good to hold above Friday’s 0.7895 low. Whether this holds or crumbles after today’s RBA Minutes is now the big question for global FX markets. <br><br> The Governor’s statement after the February 6th Board meeting said, “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time”. The 68-page Quarterly Statement just 3 days later had exactly the same message, whilst Deputy Governor Luci Ellis last week was notably cautious in her assessment of wage pressures and household consumption. The discussions in the Minutes released today are unlikely to deviate much from this path of gradualism, and it would be a source of genuine surprise if future interest rate expectations were to be much changed as a result. <br><br> One thing is certain however: on current published forecasts, both CBA and NAB cannot be simultaneously correct. CBA has erased the two rate hikes it had penciled-in for 2018 whilst the NAB still has them in its forecast profile. We doubt the Minutes will be the peg on which to hang any forecast changes, but Wednesday’s quarterly wage prices will be scrutinised closely for any clues. The last set of numbers in November showed a +0.5% q/q increase to leave the annual rate at 2.0%; well-below its long-run average around 3¼%. Consensus looks for a similar pace of growth in the Q1 data. The Australian Dollar opens in Asia this Tuesday morning at USD0.7910, with AUD/NZD at 1.0730 and GBP/AUD1.7695.

GBP / AUD

Expected Range

The GBP had a bit of a wobble on Monday and ended up sharing bottom spot in our one-day performance table with the NZD, having at one point been on its own way below the rest of the pack, before a rally during the North American morning. GBP/USD stood around 1.4030 at lunchtime in Europe but then took a dive to the low 1.3960’s as the initial 100-point gain for DJIA futures turned into a near 100-point loss. As stocks recovered, so too did the ‘cable’ rate, even though it struggled to hold on to a USD 1.40 handle. <br><br> On Sunday, in an interview for the BBC's Andrew Marr Show, Guy Verhofstadt, the EU Parliament's Brexit chief, said that Britain cannot cherry pick the areas where it wants to make bespoke deals, and that any deal should ensure there "should be no competitive advantage for either the UK or EU. What will be in that part of the agreement, we will see. Passporting will not be there, you have to be part of the Single Market," he said. UK Ministers David Davis and Liam Fox are said to be preparing speeches for delivery this week but no amount of internet searches actually throws up any details of where and when these might be. <br><br> A fascinating analysis by The Guardian newspaper claims that Britain will move beyond “peak cash” this year, with debit cards set to overtake cash as the most frequently used payment method in the UK later this year. In 2006, 62% of all payments in the UK were made using cash; in 2016 the proportion had fallen to 40%. By 2026, it is predicted cash will be used for just 21%, according to figures from UK Finance. ATM data show that in 2016, there were 2.7bn withdrawals from the country’s 70,000 cash machines; the lowest number of transactions since 2010. The total amount of money withdrawn at ATMs has fallen steeply in the last few years; in 2016, people withdrew more than £6bn less than they did in 2015. Bank of England figures meanwhile show that while the volume of cash in the economy typically increases every year, it is now doing so at the slowest rate since 1972. It is not just the world of cross-border currency transactions which is being transformed by new technology and smarter companies! The pound opens in Asia this morning at USD1.4005, GBP/AUD1.7700 and GBP/NZD1.9000.

AUD / EUR

Expected Range

The euro had a pretty quiet Monday in Asia but EUR/USD then fell more than half a point either side of lunchtime in Europe, moving from 1.2425 to 1.2370 before rebounding back on to a 1.24 ‘big figure’ as US stock index futures recovered their losses. <br><br> We mentioned last week that German politics were becoming less of a tail-risk for the euro, but there are some signs that it is again growing as a source of concern. Two developments are worth noting. The first is that the 463,723 Social Democratic party members still have to decide whether to enter another grand coalition under Chancellor Angela Merkel. They have until March 2 to submit their votes, and the result is expected to be announced the following day. At a special SPD conference in January, only 60 percent of delegates voted to authorise their leaders to hold coalition talks with the conservatives. “I am convinced we will get a majority,” Andrea Nahles, who senior SPD officials this week endorsed as the party’s future leader, told Der Spiegel magazine in comments published on Saturday. “I don’t have a Plan B.” The second concern is that even if a coalition is approved, a poll published on Monday by the newspaper Bild put the Alternative for Germany (AfD) on 16 percent, showing that they are currently more popular than the Social Democrats (SPD). They entered the Bundestag for the first time in September after winning 12.6 percent of the vote. The party was set up in 2013 and fought the election of that year on an anti-Euro platform. Don’t be surprised to hear much more from AfD over the coming months. <br><br> Tuesday brings Germany’s ZEW Survey of professional forecasters and the so-called ‘flash PMI’s’ are published on Wednesday. The EUR opens in Asia this morning at USD1.2410, AUD/EUR0.6375 and NZD/EUR0.5940.

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