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By Nick Parsons

President Trump talks up USD Dollar, leading to sharp reversal of earlier weakness


AUD / CAD

Expected Range

USD/CAD continued to move a bit lower, albeit the Canadian Dollar has lagged other major currencies after some slightly softer than expected local economic data. The low point for USD/CAD came just before lunchtime in North America at 1.2287 before a rally back on to 1.2380 after President Trump’s comments on the USD. <br><br> Retail sales increased for the third consecutive month in November, rising 0.2% to $50.1 billion. Sales were up in 6 of 11 subsectors, representing 37% of total retail trade. Higher sales at gasoline stations, electronics and appliance stores and general merchandise stores offset lower receipts at new car dealers. Excluding motor vehicle and parts dealers, retail sales rose 1.6%. The headline number was below consensus, the ‘core’ number quite a bit higher so it was a pretty volatile 10-15 minutes as the pre-programmed algorithms tried and failed to make sense of it all.<br><br> Speaking in Davos, Bank of Canada Governor Stephen Poloz said he did not know what potential there may be for further interest rate hikes this year, reiterating that policymakers remained both data dependent and alert to developments with NAFTA. "We've explained to people that there are a number of important issues that force us to not be mechanical or to use a rule or to plan ahead in that way. We've said we are totally data dependent." <br><br> Asked if the BoC was also "NAFTA dependent," Poloz said: "Oh yes, very." But he said it was impossible to do the arithmetic ahead of time to know what policy response may be needed if the trade deal is terminated or significantly altered. "If the economy began to slow as a result, then we'd be able to put those pieces together, then it would go into the mix, the inflation target would be at risk, and we'd be cutting rates into that. But a lot of things could move at the time.” The CAD opens in Asia this morning at USD/CAD1.2380, AUD/CAD0.9920 and NZD/CAD0.9060.

AUD / USD

Expected Range

The US Dollar continued to slide Thursday until a fairly emphatic intervention in Davos from President Tump. The USD index against a basket of major currencies had fallen almost 4 per cent; its worst start to any year since 1987 and reached a low point of 88.21; down more than half a percent on the day. Late in the New York afternoon, in an interview with CNBC, President Donald Trump said, "the dollar is going to get stronger and stronger and ultimately I want to see a strong dollar,", further adding that Treasury Secretary Steven Mnuchin's comments were taken out of context. The USD index jumped from 88.40 to 89.25.<br><br> Earlier in the day, Treasury Secretary Mnuchin played down his comments that a weaker dollar was “good for us as it relates to trade and opportunities”. Mnuchin told reporters, “I thought my comment on the dollar was actually quite clear yesterday. I thought it was actually balanced and consistent with what I’ve said before, which is, we are not concerned with where the dollar is in the short term.” Mnuchin said there were “both advantages and disadvantages of where the dollar is in the short-term” and stressed that the United States wanted fair economic competition. “We want free and fair and reciprocal trade. So, I think it’s very clear. We’re not looking to get into trade wars. On the other hand, we are looking to defend America’s interests.” <br><br> Amidst all the uncertainty and rising volatility in global equity and foreign exchange markets, the US Dollar index opens in Asia at 89.25.

AUD / EUR

Expected Range

Two days ago, the EUR rose to USD1.24 for the first time since December 2014. Yesterday, it hit 1.2460 at the end of the Asia session before a bit of position-squaring ahead of a much-anticipated ECB meeting. During President Draghi’s Press Conference which was notable in several respects (see below), it touched a high of 1.2530 before then crashing to 1.2370 after President Trump’s comments on the USD.<br><br> Whilst the ECB worries about whether EUR strength will hinder progress towards its inflation objective by weighing down on the cost of imported raw materials and forcing exporters into more cost-cutting to remain internationally competitive, it seems to be doing no harm at all to the broader Eurozone economy. The ifo Business Climate Index out this morning rose to 117.6 points in January from 117.2 points in December. This was due to far better assessments of the current business situation, with the sub-indicator hitting a record high. Business expectations for the next six months, by contrast, were slightly scaled back, but remain at a high level. As the ifo puts it, “the German economy made a dynamic start to the year.” The big issue was whether Draghi would change forward guidance on interest rates (he didn’t), try to talk the EUR lower (he didn’t) or sound in any way concerned about the impact of a strong EUR on growth and inflation forecasts (he didn’t). The standard practice amongst Central Bankers when asked to speak about the actions of another is a diplomatic “no comment”. Instead, he entered a war of words with unnamed (but clearly American) officials for manipulating the currency, saying “someone else’s FX talk doesn’t comply with agreed terms... When I said communication, I didn’t mean ECB communication but other people’s communication. We don’t target the exchange rate.”<br><br> Instead of throwing stones from inside the ECB’s elegant glass house in Frankfurt, perhaps Mr Dragi should reflect that the ECB did more to push up EUR/USD than anything on US side. Its January 11th account of the December meeting said, "language pertaining to various dimensions of the monetary policy stance and forward guidance could be revisited early in coming year". EUR/USD rose 4.5 cents after that… The EUR opens in Asia at USD1.2375, AUD/EUR0.6475 and NZD/EUR0.5915.

AUD / NZD

Expected Range

The NZD on Wednesday rose to a high of USD0.7433; the first time it has been on a US 74 cents ‘big figure’ since early-August 2017. Thursday morning, however, it suffered a very sharp reversal as the long-awaited quarterly inflation numbers fell well short of consensus expectations. NZD/USD immediately tumbled a full cent to around 0.7325 before then recovering just under half these losses. <br><br> The median published estimates were for a quarterly increase in CPI of 0.4% which would have left the annual rate at 1.9%. Instead, StatsNZ reported that prices rose just 0.1% in the December 2017 quarter. Higher petrol prices, air fares, and housing-related costs were offset by lower prices for vegetables, new cars, and a range of household goods. The relatively flat result this quarter leaves the CPI inflation rate at 1.6% for the December 2017 year. <br><br> In its last published monetary policy assessment back in early November, the RBNZ saw inflation reaching 2 percent in Q2 2018 as opposed to Q1 2019 which they had previously forecast. It also said it no longer sees headline inflation declining. As that forecast now heads to the shredder, analysts have been quick to revise down their interest rate expectations. ANZ, for example, said the data, coupled with their belief the “economy is set to go through somewhat of a near-term growth wobble”, have pushed its expectations for the Reserve Bank of New Zealand to hike the official cash rate back from November 2018 to mid-2019. <br><br> There is no economic news scheduled for release locally today and the NZD opens in Asia this morning at USD0.7330 with AUD/NZD at 1.0950.

GBP / AUD

Expected Range

The pound’s remarkable run saw GBP/USD rise for 10 consecutive days without breaking the previous day’s low. From the day the ECB dropped its bombshell about possibly changing the language around forward guidance of monetary policy on Thursday January 11th, (ironically in an attempt to smooth market volatility) GBP/USD rose almost 9 cents; its biggest 10-day gain since June 2009. In London trading earlier yesterday morning, the pound moved higher still and hit a best level of 1.4325 before then tumbling almost 2 cents into the US close as President Trump showed he has more clout in global FX markets than ECB President Draghi. <br><br> In an interview with Bloomberg Television in Davos, UK Chancellor of the Exchequer Philip Hammond said, “We’re very happy with where the currency is at the moment… Getting the inflation rate down - and a rising pound helps to do that - helps to drive increases in real wages, and that’s good for our economy and good for our society,” he said. <br><br> In economic news locally, mortgage approvals by Britain’s banks fell to their lowest level since April 2013 in December, according to trade association UK Finance. Banks approved just 36,115 mortgages for house buying, down from 39,007 in November and 19% lower than a year ago. The RICS survey last week was consistent with even lower levels of activity in this first quarter of 2018. Separately, the CBI’s latest distributive trades survey, showed UK retail sales at a slower pace than anticipated. The survey showed a balance of +12 for January, down from +20 in December. Sales for the time of year were the weakest compared to the norm for more than four years. Orders to suppliers also fell, and looking ahead retailers expect similar growth in sales volumes while orders are forecast to be flat. <br><br> Thus far, weaker UK economic numbers haven’t mattered at all to currency traders, though we’ll see if today’s Q4 GDP numbers have any impact. Consensus expectations are for a +0.4% q/q increase compared to the +0.5% rise which the Bank of England expected in its November Quarterly Bulletin. The British Pound opens in Asia this morning at USD1.4125, AUD1.7590 and NZD1.9270.

AUD

Expected Range

Our many Australian clients will be celebrating Australia Day today and we wish them all a happy and peaceful day of celebrations with friends and family and a very enjoyable long sunny weekend. <br><br> On the eve of the national day, currency markets in the Northern Hemisphere appeared very comfortable with an Australian Dollar at 80 US cents, though this one currency pair undoubtedly overstates the general strength of the AUD. Instead, it’s a US Dollar story which has been largely responsible for pushing the pair higher, along with the associated rise in commodities which nearly always accompanies a weaker USD. <br><br> We won’t find out for another 11 days what the Reserve Bank of Australia has to say – if anything – about the current mix of exchange rates. Before then, we have the quarterly CPI figures next Wednesday to navigate; a potentially tricky day if yesterday’s experience of New Zealand CPI is any guide. <br><br> Although markets locally in Australia are closed today, it is business as usual elsewhere in the APAC region and AUD opens in Asia this morning at USD0.8030 with AUD/NZD at 1.0955 and GBP/AUD1.7595.

By Nick Parsons

US Treasury Secretary Mnuchin and Commerce Secretary Ross hit US Dollar with talk of a trade war. USD has biggest 1-day fall in 10 months.


Australian Dollar

AUD

Expected Range

Wednesday was a genuinely dramatic day in global FX markets; January 24th 2018 will be remembered as the day in which US Treasury Secretary Steve Mnuchin stated on the record that, “Obviously a weaker dollar is good for us as it relates to trade and opportunities.” It is always easier to talk a currency down than to talk it up – as a host of former finance ministers and central bankers can readily testify – and investors were quick to sell the US Dollar. It already had got off to the worst start to any New Year since 2003 and yesterday was its worst daily drop in 10 months.<br><br> Against this backdrop, the Aussie Dollar of course moved higher against the US Dollar; as did almost every currency in the world; not just those which we follow most closely here. The weakness of the USD also gave a substantial boost also to commodity prices. Gold was up $11 to $1352 per ounce. Aluminium and zinc rose almost 1%, silver was up 2.2%, copper was 3.3% higher and nickel surged 5.7%. The net impact of this was to push the AUD up to a high of USD0.8080; taking it above last September’s peak and to the best level since January 2015 when it was around three-quarters of the way through its multi-year decline from an all-time high around USD1.10 to just 70 cents.<br><br> Wednesday’s Westpac leading index was very strong. The six-month annualised growth rate, which indicates the likely pace of economic activity relative to trend three to nine months into the future, jumped from +0.66% in November to +1.41% in December. As Westpac noted, “This is a very strong above trend reading and, following the solid results in October and November, points to solid above trend growth in the early part of 2018.” They also cautioned, however, that “there are still key negatives around housing, household incomes and the consumer which are likely to challenge the sustainability of any upswing in 2018.”<br><br> As thoughts turn to tomorrow’s Australia Day holiday, the AUD opens in Asia this morning at USD0.8075 with AUD/NZD at 1.0870 and GBP/AUD1.7610.

British Pound

GBP / AUD

Expected Range

The pound was rocket-fueled on Wednesday, continuing its remarkable run which has seen GBP/USD rise for 9 consecutive days without once testing or breaking the previous day’s low. From the day the ECB dropped its bombshell about possibly changing the language around forward guidance of monetary policy on January 11th, (ironically in an attempt to smooth market volatility) GBP/USD has risen almost 7 cents.<br><br> By teatime in London yesterday the pair hit 1.4227; the highest since the EU referendum on June 23rd 2016. The 230 pip (1.6%) rally was the biggest gain seen in GBP/USD since 17 January 2017, 264 trading days earlier. As Context Analysis point out, “the 3.4 cent (2.5%) rally seen in GBP/USD so far this week marks the strongest start to a week in the 83 weeks since June 2016”.<br><br> The latest economic data from the Office for National Statistics showed that in the three months to November 2017, the number of people in work increased, the number of unemployed people was little changed, and the number of people aged from 16 to 64 not working and not seeking or available to work (economically inactive) decreased. There were 32.21 million people in work, 102,000 more than for the previous 3-month period and 415,000 more than for a year earlier.<br><br> The unemployment rate was 4.3%, down from 4.8% a year earlier and the joint lowest since 1975, whilst average weekly earnings in nominal terms (that is, not adjusted for price inflation) increased by 2.5% including bonuses and by 2.4% excluding bonuses, compared with a year earlier.<br><br> There’s a pause on the UK data calendar Thursday then on Friday it’s the Q4 GDP numbers where consensus looks for a +0.4% q/q increase compared to the +0.5% rise which the Bank of England expected in its November Quarterly Bulletin.<br><br> The British Pound opens in Asia this morning at USD1.4215, AUD1.7610 and NZD1.9140.

Canadian Dollar

AUD / CAD

Expected Range

As the USD has come under sustained selling pressure throughout the past 24 hours, so USD/CAD has moved lower. It has broken below the immediate post-BoC low last Wednesday of 1.2375 and fell to an intra-day low of 1.2320 around lunchtime in Europe; its weakest in exactly 4 months. When quoted the ‘other’ way round, then once USD/CAD hit 1.2345 the Canadian Dollar moved on to US 81 cents for the first time since September.<br><br> Just as all negotiators like to claim victory, there was no shortage of Canadians lining up to take credit for the CPATPP. International Trade Minister François-Philippe Champagne said his country got a better deal than the one the other nations wanted to sign back in November. "When we were in Danang we stood up for Canada. We said for this agreement to work for Canada we need to address specific issues," he said. "You saw that we were forceful in our position and since then we have worked to get agreements with our partners, notably on the cultural sector ... to protect, defend and promote out culture across Canada."<br><br> With NAFTA representatives already embarked on sixth round of talks in Montreal, they at least know Canada and Mexico are signing free trade deals with large new markets in the Pacific Rim though more immediately important for CAD currency traders – who will be digging out their charts to see that last September’s low was USD/CAD1.2104 – are November retail sales data on Thursday and then Friday’s CPI numbers.<br><br> The CAD opens in Asia this morning at USD/CAD1.2325, AUD/CAD0.9955 and NZD/CAD0.9155.

Euro

AUD / EUR

Expected Range

The euro couldn’t quite match the strength of the British Pound but it had another strong day on Wednesday, rising to USD1.24 for the first time since December 2014. Whilst the ECB worries about whether EUR strength will hinder progress towards its inflation objective by weighing down on the cost of imported raw materials and forcing exporters into more cost-cutting to remain internationally competitive, it seems to be doing no harm at all to the broader Eurozone economy.<br><br> Yesterday’s ‘flash’ PMI surveys were remarkably upbeat. The headline Eurozone PMI rose to 58.6 in January, up from 58.1 December and its highest since June 2006. An acceleration of service sector growth to the fastest since August 2007 was partly countered by a slowdown in manufacturing output growth, though the latter remained very buoyant. The latest three months have seen the strongest factory output increase since 2000. The Press Release noted, “The eurozone started 2018 with a further acceleration of growth to a near 12-year high, accompanied by the largest payroll gain since 2000 and the highest price pressures for nearly seven years… Activity was buoyed by a further marked and broad-based increase in new business”.<br><br> In Davos, meantime, German Chancellor Angela Merkel, French President Emmanuel Macron and Italian Prime Minister Paolo Gentiloni all did the ‘vision thing’, most especially Ms Merkel who reminded delegates that 2018 marks the 100th anniversary of the end of the first world war. The political actors a century ago ‘sleepwalked’ into a crisis, Merkel said. “This generation born after the second world war will have to prove they have learned the lessons of history. That means remaining committed to multilateralism, working together to solve problems”.<br><br> The EUR opens in Asia at USD1.2405, AUD/EUR0.6510 and NZD/EUR0.5985.

New Zealand Dollar

AUD / NZD

Expected Range

After Tuesday’s table-topping performance, the NZD only managed second place on Wednesday although against a very weak US Dollar, it did rise to a high of 0.7428; the first time it has been on a US 74 cents ‘big figure’ since early-August 2017.<br><br> In the latest developments since the Comprehensive and Progressive Agreement for Trans-Pacific Partnership was agreed Tuesday evening, New Zealand’s government said on Wednesday that it has achieved its five objectives in the renewed negotiations. In a statement to the media before heading off to Davos, David Parker, the NZ trade minister said, “Before the agreement is ratified, New Zealanders will be given the opportunity to better understand what it means for them, their families and the country. We are committed to ensuring this is done in a fair and accessible way”.<br><br> One consequence of the new deal is the government now has more time to reconsider a controversial proposal to shut foreign buyers out of the NZ property market. Legislation had been expected to be in place by March but Mr. Parker said “the Government will now recommend the select committee examining the Overseas Investment Amendment Bill allow more time for consideration”.<br><br> As well as the clumsily-titled CPATPP (an acronym which hardly rolls off the tongue), the big economic news domestically today will be the quarterly CPI numbers which consensus estimates will be around +0.4% q/q and 1.9% y/y. New Zealand (like Australia) doesn’t publish monthly CPI numbers so they’re always very keenly anticipated for clues to the RBNZ’s interest rate policy.<br><br> The NZD opens in Asia this morning at USD0.7425 with AUD/NZD at 1.0870.

United States Dollar

AUD / USD

Expected Range

In these first 3½ weeks of 2018, the USD index against a basket of major currencies has now fallen over 3 per cent; its worst start to any year since 1987. Wednesday was the worst day in 10 months for the USD which fell against every major currency and most of the world’s minor ones too. It opened at a 37-month low around 89.70 before the US Trade and Treasury Secretaries unleashed their own particular brand of Alpine diplomacy at the WEF in Davos. Less than 12 hours later, the USD index was on an 88 ‘big figure’.<br><br> Though Treasury Secretary Steve Mnuchin initially stuck to a familiar script that, “longer term the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency," he went on to say that, “Obviously a weaker dollar is good for us as it relates to trade and opportunities.”<br><br> Speaking alongside the Treasury Secretary, Commerce Secretary Wilbur Ross only inflamed the situation by saying that "Trade wars are fought every single day… a trade war has been in place for quite a little while, the difference is the U.S. troops are now coming to the rampart." This prompted Jack Ma, head of China’s Alibaba to say, “It’s so easy to launch a trade war, but it’s so difficult to stop the disaster of this war. Don’t use trade as a weapon, use trade as a solution to solve problems”. The mood hardly improved when Ross called China’s 2025 technology strategy a “direct threat” and hinted at action against Beijing, stirring fears of a genuine trade war.<br><br> President Donald Trump himself said last August that, “the dollar is getting too strong” and the currency world will be watching to see if he aligns with or distances himself from this talk of trade war when he gives his Davos speech later this week.<br><br> Amidst all the uncertainty and rising volatility in global stock markets, the US Dollar index opens in Asia at 88.90.

By Nick Parsons

Fresh 37-month low for USD but AUD struggling to hold US 80 cents. NZD was top of the pile on Tuesday.


Australian Dollar

AUD

Expected Range

Tuesday was a roller-coaster day for the Australian Dollar which reached a high around lunchtime in Sydney of USD0.8025, fell to nearly 0.7960 by the time lunch arrived in London and was then back up to 0.7997 as New York traders’ thoughts turned to their midday meal. Perhaps the key takeaway (excuse the pun!) about the AUD price action is that it couldn’t hold on to a US 80 cents big figure.<br><br> In the Australian housing market, a story in the AFR showed that Sydney residential vacancy rates picked up to 2.2% in December, their highest level since July 2013. Rising vacancy rates are expected to put downward pressures on rent, and the latest data shows Sydney rents fell 0.3% in December, to a median weekly rent of $599 for houses and $561 for apartments.<br><br> As for consumers, the latest ANZ-Roy Morgan Australian Consumer Confidence index released yesterday fell 3.3% to 119.4 this week following three consecutive strong reports. The fall was broad based, with views towards current finances leading the pullback. The current finances sub-index fell a sharp 9.1% to 104.7, partially unwinding gains over the previous three weeks. In comparison, views towards future finances fell a more modest 2.2%, following a 0.2% decline in the week prior. Despite the weekly falls, both sub-indices sit above their long-term averages.<br><br> As thoughts are already turning to Friday’s holiday, the only economic data releases before then are today’s Westpac leading index and skilled vacancies numbers.<br><br> The AUD opens in Asia this morning at USD0.7995 with AUD/NZD at 1.0875 and GBP/AUD1.7510.

British Pound

GBP / AUD

Expected Range

After being a one-way mover on Monday, the pound was up and down in very erratic fashion on Tuesday. It peeped above USD1.40 very early in the European morning then fell all the way back to 1.3925 before then jumping almost a full cent to a fresh 2018 high of 1.4018. By close of business in New York, it was back on a 1.39 ‘big figure’.<br><br> The latest monthly CBI survey of 369 manufacturers published yesterday morning revealed that optimism about both business conditions and export prospects improved at an above-average pace. Growth in manufacturing output and domestic and export orders all picked up, compared with the previous three-month period. Stocks also continued to grow robustly: for example, inventories of finished goods stocks rose at the fastest pace since October 2013. Employment grew at the fastest pace since July 2014 over the last three months, with further growth expected next quarter. However, skill shortages are high on firms’ agendas, with the number of firms citing skilled labour as a factor likely to limit output over the next three months the highest for more than four decades. And overall capacity pressures are biting hard: the proportion of firms with spare operating capacity was the lowest in 29 years.<br><br> Whilst much of the government still seems to be away in Davos, today we get the latest month unemployment and average earnings numbers and on Friday it’s the Q4 GDP numbers where consensus looks for a +0.4% q/q increase compared to the +0.5% rise which the Bank of England expected in its November Quarterly Bulletin.<br><br> The British Pound opens in Asia this morning at USD1.3990, AUD1.7510 and NZD1.9040.

Canadian Dollar

AUD / CAD

Expected Range

USD/CAD was up and down as much as all the USD-based currency pairs on Tuesday but finally settled around 1.2435 having ranged from 1.2430-1.2490 in the Northern Hemisphere trading day.<br><br> The day began with news of an earthquake with a magnitude of 7.9 on the Richter scale 250km off the coast of Alaska and a tsunami alert was issued for the entire west coast of Canada and the United States as far south as Los Angeles. Fortunately, this failed to materialise as feared and though there was localised damage, it was a mercifully short-lived scare.<br><br> Much of Prime Minister Justin Trudeau’s speech to the World Economic Forum in Davos focussed on gender inequality and the benefits to be derived from hiring, promoting and retaining women. On more immediately market-sensitive issues, he said, “We’re working very hard to make sure that our neighbour to the south recognises how good NAFTA is and that it has benefited not just our economy but his economy and the world economy.” He also said the new Trans-Pacific trade deal would create “well-paying middle class jobs for decades to come” even though it did not involve the United States.<br><br> Next up for CAD currency traders will be Thursday’s November retail sales data and Friday’s CPI numbers. As for energy prices, WTI crude is back up to $64.50 per barrel, within touching distance of last week’s 3-year high of $64.75.<br><br> The CAD opens in Asia this morning at USD/CAD1.2435, AUD/CAD0.9945 and NZD/CAD0.9145.

Euro

AUD / EUR

Expected Range

Tuesday was a good day for the euro – and a less good one for those ECB Council members who were talking it down last week. EUR/USD rose from 1.2220 at the start of the European morning to a best level during the day of 1.2294; the highest in almost a week. There were two very strong economic data releases.<br><br> First was a very upbeat German ZEW Survey released today. According to their Press release, “The latest survey results reveal an optimistic outlook for the German economy in the first six months of 2018. With 95.2 out of 100 points, this is the most positive assessment of the current economic situation since the introduction of the survey in December 1991. Private consumption, which was the most important driver of economic growth in 2017, is likely to continue to stimulate growth in the coming six months according to the survey participants. The assessment of the global economic environment in Europe and the USA is also much more favourable than it was at the end of 2017.”<br><br> Second, was the European Commission’s Eurozone consumer confidence measure which rose to 1.3 points from 0.5 points in December, well above market consensus of an increase to 0.6. This is the highest level of the indicator since August 2000. The highest ever level of the index, which dates back to 1985, was the 2.1 points hit in May 2000.<br><br> Before the key ECB meeting on Thursday, we have the preliminary Eurozone ‘flash’ PMI surveys later today and the ifo survey on Thursday morning.<br><br> The EUR opens in Asia at USD1.2295, AUD/EUR0.6500 and NZD/EUR0.5980.

New Zealand Dollar

AUD / NZD

Expected Range

Monday was an unusual day for the New Zealand Dollar: it finished neither top nor bottom of the one-day performance table! Normal service was resumed on Tuesday, however, as the NZD gained against every one of the major currencies we follow here. During the Asian session it rose to USD0.7344; its best level at any point since the election. By late afternoon in Europe it had extended these gains to a high around 0.7360; the best since September 20th and less than half a cent shy of a fresh 6-month high.<br><br> The Kiwi’s strong performance came after news that New Zealand, along with 10 other nations, has agreed to the new formation of the Trans-Pacific Partnership (TPP). The Pacific trade pact was abandoned by US President Trump and the 11 remaining members reached a deal on a revised agreement, with the nations to work toward signing the deal by early March, according to Singapore’s government. The deal has been renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and its trade Minister enthused that, “The CPTPP will enhance trade among countries in the Asia-Pacific, resulting in more seamless flows of goods, services, and investment regionally.”<br><br> Also helping the NZD was the performance of services index. December’s index fell back to 56.0 though the Press release from BusinessNZ was pretty upbeat saying the services sector ended the year in solid expansion territory and noting the monthly average for 2017 of 56.9 was up on the 2016 average of 56.6. They drew attention, also, to the sub-index of new orders which showed strong expansion with an average over 60 points for 2017.<br><br> The main focus for the rest of the week will be Thursday’s quarterly CPI numbers which consensus estimates will be around +0.4% q/q and 1.9% y/y. The RBNZ’s published forecast is one-tenth lower on both measures.<br><br> The NZD opens in Asia this morning at USD0.7350 with AUD/NZD at 1.0875.

United States Dollar

AUD / USD

Expected Range

The USD rose from the start of the government shutdown at midnight on Friday then fell pretty much from the moment Senate Democratic leader Chuck Schumer announced that his party would support a short-term spending measure to the government through February 8th. It wasn’t supposed to happen that way round! Early on Tuesday, its index against a basket of major currencies bounced from 89.98 in Sydney to a best level of 90.21 in the London morning. From then on, however, it was downhill all the way to a fresh 37-month low of 89.77. In part some of the weakness of the US Dollar is political and reflects international investors’ distaste for President Trump’s ‘America First’ policy. Whereas a year ago the USD was rallying in anticipation of what it would mean for growth in what looked like one of the few rapidly-expanding parts of the world, today there’s plenty of choice. Indeed, the IMF has just upgraded its world GDP forecast to 3.9%; the best since the GFC.<br><br> On Monday President Trump announced tariffs on imported solar panels and washing machines in his first major move to level a global playing field he says is tilted against American companies. The juxtaposition of this with the new CPATPP (see New Zealand for details) is quite striking and it will be very interesting to see which version of Mr Trump is on display at Davos later this week.<br><br> In economic data, the Philly Fed non-manufacturing survey tumbled fully 10 points from 29.4 to 19.5 whilst the Richmond Fed's Manufacturing Survey slumped in January to just 14 having been at a record high of 30 as recently as November. Later on Wednesday we’ll get existing home sales for December and Markit’s ‘flash’ estimate of their PMI indices which will probably be ignored unless they’re soft; in which case they could well be used as another excuse to sell USD.<br><br> Amidst all the uncertainty, the US Dollar index opens in Asia at 89.80.

By Nick Parsons

US government shutdown ends after 3 days but could happen again February 9th. USD steady, AUD and NZD just below recent highs.


Australian Dollar

AUD

Expected Range

Monday was very much an up and down day in the Northern Hemisphere for the Australian Dollar. As is so often the case when there is a big uncertain geopolitical event and the currency already has some positive momentum, it can benefit simply from its geographical separation; it’s a long way away from bad things. In this case, it was the width of the Pacific Ocean which distanced the AUD from the US government shutdown and after AUD/USD printed a low locally in Sydney just above USD0.7980, it was then bid up all the way to 0.8021 before stories began to circulate of a Democratic agreement to end the US government debacle and the pair slipped back to 0.8005.<br><br> There are no major economic data releases locally this week, with only the ANZ Roy Morgan weekly consumer confidence numbers today and the Westpac leading index and skilled vacancies numbers on Wednesday. The first RBA meeting of the new year is still more than a fortnight away and the currency is more likely to be impacted by news from the US and Davos, Switzerland than by anything at home. Yesterday, for example, it was notably unmoved by figures showing auction clearance rates over the weekend in Melbourne and Sydney fell to 54% and 50%, from 67% and 61% respectively this time last year.<br><br> The AUD opens in Asia this Tuesday morning at USD0.8010 with AUD/NZD at 1.0945 and GBP/AUD1.7450.

British Pound

GBP / AUD

Expected Range

After a quiet session in Asia yesterday which saw GBP/USD in a range from 1.3760-90, it moved back on to a 1.38 big figure during the European morning and on to a best level in the New York afternoon of 1.3988; a fresh high for 2018 and the highest since the day after the referendum in June 2016.<br><br> Although the IMF has raised its forecast for global growth ahead of the World Economic Forum in Davos, Switzerland, the Fund has cut its forecast for UK growth in 2019 to 1.5%, down from 1.6% previously. In response, the UK Treasury issued a short statement that, “We are building a Britain that is fit for the future by improving skills, backing innovation and investing in infrastructure to deliver a stronger economy and guarantee a better future for the next generation.”<br><br> Prime Minister Theresa May and Chancellor Philip Hammond will be at the WEF. They will be joined by several of their Cabinet colleagues - Greg Clark, Liam Fox and Matt Hancock - while Bank of England governor Mark Carney, Lord Mayor of the City of London Charles Bowman and shadow chancellor John McDonnell will also be there. A Downing Street spokesman said a bilateral meeting between Mrs May and President Trump would take place in the margins of the forum, though no further details have yet been made public.<br><br> The UK public sector borrowing figures today are rarely a market mover but at 11am the latest CBI Monthly survey is released, doubtless accompanied by its usual dire warnings about what will happen to the UK economy if it doesn’t get a transitional post-Brexit deal. On Wednesday we get the latest month unemployment and average earnings numbers and on Friday it’s the Q4 GDP numbers where consensus looks for a +0.4% q/q increase compared to the +0.5% rise which the Bank of England expected in its November Quarterly Bulletin. <br><br> The British Pound opens in Asia this morning at USD1.3985, AUD1.74350 and NZD1.9110.

Canadian Dollar

AUD / CAD

Expected Range

With the Bank of Canada meeting finally fading into the rear-view mirror, USD/CAD has eased around 45-50 pips from Friday’s New York close to be back at 1.2455.<br><br> The sixth round of talks on renegotiating the North American Free Trade Agreement, or NAFTA, is now underway in Montreal until January 29th. In its Statement announcing the rate hike, BoC said the future of NAFTA was the most significant downside risk the economy faced. Canada sends about 75 percent of its exports to the United States. <br><br> After spending the past two weeks all across the country speaking with ordinary Canadians in town hall meetings, Prime Minister Justin Trudeau must be the only leader going to the World Economic Forum in Davos to find the temperature warmer than at home! According to his office, one of the key pieces of Trudeau’s program will be the speech he delivers on Tuesday. “It will be an opportunity to present our international priorities and to talk about the five themes of the G7 that we’ve already unveiled”. <br><br> As well as the progress of NAFTA talks and headlines from Davos, currency traders will also be waiting Thursday’s November retail sales data and Friday’s CPI numbers. They’ll be keeping an eye too on energy prices after WTI crude last week hit a fresh 3-year high of $64.75 before ending the week around $63.50 per barrel.<br><br> The CAD opens in Asia this morning at USD/CAD1.2455, AUD/CAD0.9980 and NZD/CAD0.9115.

Euro

AUD / EUR

Expected Range

Despite some deliberately plain and unsubtle verbal intervention from ECB Council members which held the euro down last week, the Single European Currency bounced back a little on Monday. EUR/USD rose from 1.2220 to a best level during the day of 1.2265. There were no fresh economic numbers in the Eurozone, but there were a couple of sovereign credit ratings upgrades for investors to digest.<br><br> Fitch upgraded Spain’s credit rating to “A-” with a stable outlook late on Friday, citing a broad-based economic recovery and limited impact on the economy from Catalonia’s independence bid. It was Spain’s first “A” rating from one of the top three ratings agencies since the euro zone debt crisis. S&P Global Ratings, meantime, lifted Greek long-term foreign currency ratings for the first time in two years on improvements in government finances and the fiscal outlook.<br><br> Yesterday in Brussels, there was a meeting of the Eurogroup finance ministers which also extended an invitation to Mario Draghi and Benoit Coeure of the ECB. As European Commission President Jean-Claude Juncker pointedly tweeted, “Congratulations and best wishes @mariofcenteno for assuming the Presidency of the #Eurogroup. I look forward to fixing our roof while the sun is shining.”<br><br> Ahead of the ECB meeting on Thursday, we have the German ZEW survey today and then the preliminary Eurozone ‘flash’ PMI surveys on Wednesday and the ifo survey on Thursday morning.<br><br> The EUR opens in Asia at USD1.2255, AUD/EUR0.6535 and NZD/EUR0.5970.

New Zealand Dollar

AUD / NZD

Expected Range

Monday felt like one of the quietest days for some time for the New Zealand Dollar even though from its low point in Asia of USD0.7271 it managed to add just over half a cent to 0.7326 before news came around midday Washington time of an agreement to end the US government shutdown which gave a boost to the US Dollar and asset markets and took the Kiwi down to 0.7305.<br><br> After last Friday’s disappointment of the manufacturing PMI survey, Tuesday brings the performance of services index. The last monthly numbers out exactly a week before Christmas showed a slight lift in November from 55.7 to 56.4 and brought to an end a 2-month spell of weaker rates of expansion around and immediately after the September election. There is no published consensus for today’s numbers which are released around 10.30am local time.<br><br> The main focus of the week will be Thursday’s quarterly CPI numbers which consensus estimates will be around +0.4% q/q and 1.9% y/y. The RBNZ’s published forecast is one-tenth lower on both measures.<br><br> The NZD opens in Asia this morning at USD0.7320 with AUD/NZD at 1.0945.

United States Dollar

AUD / USD

Expected Range

The USD didn’t actually make a fresh low on Monday. Its index against a basket of major currencies held on to a 90 ‘big figure’ across all three time-zones even before news came of an end to the government shutdown after just 3 days.<br><br> Just after midday in Washington, Senate Democratic leader Chuck Schumer announced that his party would support a short-term spending measure – which funds the government through 8 February - while extending for six years a popular health insurance program, Chip, that provides coverage to 9 million children. A preliminary vote to advance the bill passed 81-18. Sixteen Democrats and two libertarian-minded Republicans voted against it. Republican House speaker Paul Ryan said that if the Senate passed the spending bill, the House would pass it. He had refused to negotiate on an immigration deal – a key sticking point – while the government remains shut down.<br><br> Of course, this only kicks the can another 2 ½ weeks down the road and if no agreement can be made on the so-called ‘Dreamers’ immigration programme, then the government will shut down again on February 9th. In the meantime, stocks have surged to yet another record high, whilst 10-year Treasury bond yields have made a fresh cycle high of 2.66%. How long stocks and bond yields can continue to rise simultaneously is the big question gripping asset managers and private investors around the world.<br><br> Amidst add the chaos, the US Dollar index opens in Asia at 90.05.

By Nick Parsons

US Government shuts down for 19th time in last 40 years. ECB meeting on Thursday is key for EUR. AUD struggling to hold 80 US cents.


Australian Dollar

AUD

Expected Range

A fortnight ago, the Australian Dollar stood on the sidelines as the rest of the non-US currency world partied, but last week it finally joined in, hitting 80 US cents for the first time since September and falling just 20 pips short of what would have been its best level in 32 months. Friday’s high was USD0.8035 whilst the high back on September 12th last year was 0.8052. It ended in New York on Friday around 0.7985.<br><br> World commodity prices have certainly helped lift the AUD, as too has the very low level of volatility across asset classes which makes the currency’s yield advantage more attractive. In the one-month period to the middle of the week, gold had risen almost $100 per ounce to $1,242 per ounce; an increase of almost 9%. Over the same period, aluminium was up 13% and platinum was 12% higher. Coal has been steady recently but was still up more than 30% from last Summer.<br><br> The week ahead kicks off slowly then gets even slower with the Australia day holiday on Friday January 26th; the day the commander of the First Fleet, Captain Arthur Phillip, rowed ashore at Sydney Cove, raised the Union Jack and proclaimed British sovereignty over part of the continent in 1788. Whatever the rights and wrongs of an increasingly controversial holiday, it is sure to be celebrated in some style as it conveniently starts a long, warm Summer weekend.<br><br> There are no top-tier economic data releases locally this week, with nothing at all today then the ANZ Roy Morgan weekly consumer confidence numbers on Tuesday and the Westpac leading index and skilled vacancies numbers on Wednesday. The first RBA meeting of the new year is still more than a fortnight away and the currency is more likely to be moved by news from the US and Davos, Switzerland than by anything at home.<br><br> The AUD opens in Asia this Monday morning at USD0.7990 with AUD/NZD at 1.0975 and GBP/AUD1.7350.

British Pound

GBP / AUD

Expected Range

The Pound had a very good week, even though incoming economic data was generally soft and there has been no progress at all in Brexit negotiations. It opened on Monday morning in Sydney around USD1.3730 and made a whole series of fresh 2018 highs during the week. In the immediate aftermath of the EU referendum back on June 23rd 2016, GBP had fallen from 1.48 to 1.32 so there is no obvious point of technical resistance to cap the current up-move. Chart specialists will point to the February 2016 low around 1.3850 and the low in April that year of 1.4080 as possible hurdles but investors have been piling in to a currency which looks fundamentally inexpensive and has plenty of positive momentum.<br><br> The week ahead begins very quietly in terms of market-moving economic releases though Prime Minister Theresa May will be in at the World Economic Forum in Davos, Switzerland where she is scheduled to meet with US President Donald Trump. A Downing Street spokesman said the "bilateral meeting" would take place "in the margins" of the forum.<br><br> On Wednesday we get the latest month unemployment and average earnings numbers and on Friday it’s the Q4 GDP numbers where consensus looks for a +0.4% q/q increase compared to the +0.5% rise which the Bank of England appears to have penciled in.<br><br> The British Pound opens in Asia this morning at USD1.3855, AUD1.7350 and NZD1.9040.

Canadian Dollar

AUD / CAD

Expected Range

Last week’s trading in the Canadian Dollar was completely dominated by Wednesday’s first Bank of Canada monetary policy meeting of the year. In line with the majority expectation, BoC raised rates 25bp to 1.25%. The initial reaction in FX markets was the usual mix of algorithm-driven stop-loss and stop-entry orders as the headlines flashed across the screens. After the dust settled, USD/CAD spent the next 48 hours firmly bounded by the immediate post-BoC range of 1.2385-1.2470 but in the very last hour of trading in New York on Friday moved up to end the week at 1.2500.<br><br> The sixth round of talks on renegotiating the North American Free Trade Agreement, or NAFTA, is due to take place in Montreal from January 23-29th. In its Statement announcing the rate hike, BoC said the future of NAFTA was the most significant downside risk the economy faced. Canada sends about 75 percent of its exports to the United States.<br><br> As well as the progress of the talks, currency traders will also be awaiting Thursday’s November retail sales data and Friday’s CPI numbers. They’ll be keeping an eye also on energy prices after WTI crude last week hit a fresh 3-year high of $64.75 before ending the week atound $63.50 per barrel.<br><br> The CAD opens in Asia this morning at USD/CAD1.2500, AUD/CAD0.9980 and NZD/CAD0.9090.

Euro

AUD / EUR

Expected Range

The euro ended the week just 20 pips higher than its starting point on Monday of USD1.2200. On Wednesday morning in Sydney the USD had a very quick spike lower which lifted the EUR to 1.2302; a fresh high for 2018 which was entirely unexplained by any news story or headline. Given the changed regulatory environment these days in wholesale FX markets, there was no chat around what client flows may have triggered it. It is as much of a mystery now as it was at the time. By the end of the week, after some fairly blunt verbal intervention from ECB Council members, EUR/USD was back down at 1.2220.<br><br> The main event of the week ahead is of course Thursday’s ECB Council Meeting. After a totally unexpected shift in language in its summary of the last meeting, the big question is whether President Draghi will attempt to dial back market expectations around an actual shift in interest rate policy. He has form on this: at a meeting in Sintra, Portugal on June 27th last year, he spoke of a strengthening and broadening recovery in the Eurozone but then spent the last 2 months up to the Jackson Hole gathering in late August trying to undo the impact of his words on the euro exchange rate.<br><br> Ahead of the ECB meeting, we have the German ZEW survey on Tuesday and then the preliminary Eurozone ‘flash’ PMI surveys on Wednesday and the ifo survey on Thursday morning.<br><br> The EUR opens in Asia at USD1.2220, AUD/EUR0.6535 and NZD/EUR0.5955.

New Zealand Dollar

AUD / NZD

Expected Range

The volatility in the New Zealand Dollar shows no sign of abating. Of the six major currencies we follow closely here, its position on the one-day performance charts over the past week has been first, last, second, first equal and last equal. On Monday, NZD/USD got back on a US 73 cents big figure for the first time since the day after the General Election back in late September and was up over 5 cents from the November 8th low. On Wednesday it hit a best level for the week just under USD.7330 and closed in New York on Friday at 0.7275.<br><br> Today is a partial holiday in New Zealand. Wellington Anniversary Day is celebrated on the Monday nearest to January 22nd and commemorates the arrival of the first settler ship to New Zealand in 1840. The settlers named the town they founded Wellington, in honour of the first Duke of Wellington, who had been victorious at Waterloo some 25 years earlier. Auckland has its own holiday next Monday, January 29th.<br><br> After last Friday’s disappointment of the manufacturing PMI survey, Tuesday brings the performance of services index. The main focus of the week, though, will be Thursday’s quarterly CPI numbers which consensus estimates will be around +0.4% q/q and 1.9% y/y. The RBNZ’s published forecast is one-tenth lower on both measures.<br><br> The NZD opens in Asia this morning at USD0.7275 with AUD/NZD at 1.0975.

United States Dollar

AUD / USD

Expected Range

The hard numbers show that the USD index against a basket of major currencies fell only 0.2% over the course of the week, even though it felt much worse than that. The pattern of trade was such that the USD made four fresh lows on four different days at 89.99, 89.96, 89.92 and 89.89 which all gave rise to a flurry of Press headlines about the drop. But, just reading through the actual index levels, we can see that only one-tenth of a point separated all four. Sometimes it’s important to look at the scale on the charts rather than to rely on the headlines alone.<br><br> The dollar decline again came despite yet another good set of economic numbers. The previous week had seen higher core inflation and retail sales numbers. Last week, industrial production surged +0.9% in December as very cold weather at the end of the month boosted demand for heating. Thursday, we learned that weekly jobless claims decreased by 41k to 220k; their lowest level since February 1973 and the biggest weekly biggest drop since April 2009.<br><br> At midnight on Friday, the US government began to shut down; the first time ever that a party which controls the White House, Senate and House of Representatives has overseen a government shutdown. It is the 19th such occasion in the last 40 years. Four of these 19 have lasted just one day with the longest in 1995 lasting 21 days. During the last government shutdown in October 2013, 850,000 federal workers were furloughed, equal to nearly 40% of the government workforce. The shutdown lasted for 16 days, triggered by a disagreement over Obamacare. According to Standard & Poor’s, it cost the economy $24 billion.<br><br> Amidst this latest cause for uncertainty, the US Dollar index opens in Asia at 90.35.

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