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By Nick Parsons

Protectionist trade and central bank policy announcements dominate direction


AUD / USD

Expected Range

The U.S dollar advanced against most major currency counterparts and forced a sell off in emerging market currencies through trade on Thursday as the threat of a global trade war escalated after President Trump signed in section 232 proclaiming an increase in tariffs on steel and aluminum. While specifics of the import duties are still to take shape the proclamation appears largely wide reaching with only Canada and Mexico appearing to enjoy exemptions at this current stage with future exemption dependent on ongoing NAFTA negotiations. <br><br> The continued advance of republican protectionist and America first policies threaten to derail the global growth recovery, especially if the latest move sparks a fully-fledged trade war as other nations and trading blocs respond. Trade wars undermine productivity and increase prices for domestic consumers reducing the impetus of consumer led growth as purchasing power diminishes. While the U.S is somewhat insulated from the impacts of such moves thanks to the power of its domestic led economy the ramifications of an all-out trade war could derail the post GFC economic recovery and force a rapid revision in expectations for tighter global monetary policy. <br><br> Attentions now turn to the global response as politics continues to dominate direction while macroeconomic pundits will shift their focus to key Non-Farm Payroll data this afternoon. A strong read will only support suggestions the U.S labour market is nearing full capacity with an uptick in average hourly earnings raising expectations for a spill over into key GDP and inflation indicators.

AUD / EUR

Expected Range

The Euro moved sharply lower against the USD through trade on Thursday following largely dovish commentary for ECB president Mario Draghi. The ECB elected to maintain its current monetary policy settings and despite dropping reference to an easing bias failed to outline a clear bath to removing emergency quantitative easing settings. The 19-nation combined unit tumbled 150 points touching intraday lows at 1.2299 as the ECB cited a cautious approach to future decisions on monetary policy tightening given the current low inflation environment and emerging protectionism. <br><br> Most market analysts will tell you they weren’t surprised by the ECB’s dovish undertone with many looking to April as the marker for the ECB to begin laying out plans to close out emergency monetary policy programs and announce an end to the current bond buying program in September and signal a 20-point hike in deposit rates come December. It is this optimism that has ensured the Euro remains largely well supported on moves approaching 1.22 with fair value still considered to sit anywhere between 1.26-1.30. However recent political uncertainty in Italy and increasing concerns surrounding protectionist trade policies could threaten to derail the EU and global recovery and force a revision in such expectations. <br><br> With little of note on the macroeconomic docket today we expect direction to be driven by broader risk trends and global political brinkmanship.

AUD

Expected Range

The Australian Dollar edged marginally higher throughout the domestic session on Thursday but failed to make any meaningful forays above resistance at 0.7830. Despite a week filled with heavy hitting macroeconomic data sets and central bank policy updates political brinkmanship and trade have dominated direction and ensured the market would largely gloss over domestic trade balance data. A surprise return to surplus in January failed to provide the catalyst to drive the AUD higher as the broader consensus remained largely unchanged with a majority of analysts anticipating a return to deficit in February. <br><br> Intraday highs topped out at 0.7836 before the dollar began reversing gains enjoyed above 0.8 and slid back to touch session lows at 0.7773 and now appears to be entrenched in a broader downtrend channel. Stable resistance appears to have formed on moves approaching 0.7830 and while we remain reasonably well supported on moves approaching the weekly and year to date lows at 0.7720/30 the threat of increased protectionist trade policies and an RBA with little drive to amend accommodative monetary policy through the short term leaves the AUD vulnerable to deeper corrections. <br><br> Attentions remain strictly focused on U.S Protectionist trade policy for direction through the rest of the week as Trump’s Whitehouse seems set on introducing tariffs on steel and aluminum. The question is will there be caveats and exemptions that include Australia or is this the first step in a broader global trade war that could undermine the global economic recovery.

GBP / AUD

Expected Range

The Great British Pound moved sharply lower against the USD through trade on Thursday as concerns Britain will not secure a favourable transition deal before the end of this month’s round of EU negotiations forced the unit back below 1.38. Sticking points surrounding Irish border concerns and restrictions placed on London’s financial services engine continue to delay talks. European Council President Donald Tusk remarked on Thursday that negotiations would continue to face delays if Britain could not present a realistic proposal to exit and failed to accept EU fallback proposals. <br><br> Brexit remains the key driver behind broader GBP direction through the short term and as negotiations continue to fall down the upward momentum fostered by increased optimism in December and January is undermined. Sterling continues on a softer footing and if a deal cannot be struck in the coming months then we may see a shift in expectations supporting a BoE rate hike as early as May. The possibility of tighter monetary policy to combat inflation is providing a floor under the cable at present however should Brexit negotiations break down or prove unfavourable for the UK then we may see a return to a bearish GBP outlook. <br><br> Attentions now turn to a raft of domestic macroeconomic indicators, headlined by manufacturing production, for direction through Friday with broader trends driven by ongoing Brexit talks and broader global trade moves.

AUD / CAD

Expected Range

The Canadian dollar while edging marginally lower as oil prices continued to slip through trade on Thursday managed to stave off broad scale losses as suggestions Canada and Mexico would be exempt for US imposed tariffs on imports of steel and aluminum bolstered demand for the loonie. CAD direction has been largely driven by risk lays surrounding trade expectations this week as investors try to gauge just what this means for ongoing NAFTA negotiations. <br><br> Touching intraday lows at 0.7715 the CAD has rallied on open this morning as Trump signed section 232 proclaiming the introduction of a 25% steel tax and 10% aluminum tax on imports which would see Canada and Mexico enjoy exemptions. Recovering much of the days losses the CAD jumped half a cent to trade through 0.7750 toward resistance at 0.7775 and 0.78. <br><br> Attentions now turn to key US labour market data for direction through trade today while NAFTA negotiations remain the primary driver of broader direction. Today’s Trans Pacific trade agreement will perhaps offer some support to Canada when they next sit down and if a largely unrevised agreement can be reached then CAD upside should ensue through the medium term.

AUD / NZD

Expected Range

Much like its antipodean counterpart the New Zealand dollar edged higher throughout domestic trade on Thursday before giving up efforts to push back through 0.73 and sinking to intraday lows at 0.7246. With little macroeconomic data on hand to drive direction the Kiwi took its cues from broader risk sentiment plays and expectations surrounding global trade policy. Despite announcements a landmark Asia Pacific Trade deal was reached by 11 participants, including New Zealand, the NZD failed to hold on to upward momentum generated through trade on Wednesday. Thursday’s signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, while a shot in the arm to protectionist trade policy, did little to quell market concerns a global trade ware could derail the broader economic recovery and failed to bolster risk-based trade. The Trade agreement will reduce trade taxes in 11 countries that make up over thirteen percent of the worlds global economy however perhaps of greater significance is the absence of the U.S. Trumps withdrawal from the ten Trans Pacific Partnership was the first signal the current administration would push an Domestic America first platform when negotiating trade. <br><br> As we edge closer to an environment of reduced global cooperation in trade commodity currencies like the NZD and emerging markets across Asia will meet increasing downward pressures and we turn our attentions now to revision of Tariff section 232 to determine just what Trumps tariff proclamation means for the broader global economy. <br><br>

By Nick Parsons

AUD struggling to hold 78 US cents after soft GDP figures


AUD / NZD

Expected Range

Having found the air on a US 73 cents handle a bit thin, the New Zealand Dollar has spent the last 24 hours catching its breath in the mid to high-72’s. During the European afternoon, a move lower gathered pace and the pair fell from around 0.7295 to 0.7255 in less than a couple of hours although this wasn’t really independent NZD weakness: the key AUD/NZD cross remained steady throughout around 1.0735. <br><br> In economic data, two of the ‘partial data’ which feed in to the calculation of the GDP numbers which are out next week have now been released. The total sales value for wholesale trade rose 3.0% in the December 2017 quarter, after rising 1.4% in the September quarter. The December rise was the seventh-consecutive quarterly rise and the largest since the September 2010 quarter, when the value rose 3.8%. As for Building Work Put in Place, total building activity volume was up 1.4% in the quarter. The volume of activity for hospitals, storage, factories, and other non-residential building rose 4.1% in Q4 whilst for residential building activity, the volume fell 0.4% in the latest quarter, following a 4.1% rise in Q3. <br><br> Commenting on the two pieces of economic news, analysts at ANZ said, “Today’s figures have few implications for our views on Q4 GDP growth. Both the building work figures and separate Wholesale Trade figures were close to our expectations. There are a few partial indicators still to be released, but at this stage we are happy with our provisional Q4 GDP estimate of 0.7% q/q (3.1% y/y).” Over at Westpac, meantime, the analysts say, “With a large pipeline of planned work, the level of construction activity is likely to be elevated for some time. However, headwinds in the construction sector mean that future increases in building activity are likely to be more gradual than we have seen in recent years.” The New Zealand Dollar opens in Asia this morning at USD0.7280 and AUD/NZD1.0735.

AUD / EUR

Expected Range

On Tuesday, the Single European Currency put the Italian concerns firmly behind it to reach a best level around USD1.2410; the first time it had been back a 1.24 big figure in two weeks. On Wednesday, the EUR extended its gains to a high just under 1.2440 at lunchtime in Europe before then slipping back to the high 1.23’s in the New York afternoon session. <br><br> In crafting its response to the US President, The Times reports that, “Cecilia Malmström, the European Union commissioner for trade, warned Mr Trump that tariffs on EU steel and aluminium would prompt retaliation. The EU has identified an array of US products for potential countermeasure tariffs, including orange juice from the politically influential swing state of Florida; bourbon from Kentucky, the home state of Mitch McConnell, the senior Republican in the Senate; and Harley Davidson motorcycles, which are headquartered in Wisconsin, the home of Paul Ryan, the Republican Speaker of the House.” Tariffs on EU steel would “put thousands of European jobs in jeopardy, and it has to be met by a firm and proportionate response,” said Ms Malmström. <br><br> Back to Italy, where for the currency and stock markets, the worst possible outcome still remains a coalition between the Five Star Movement and the Northern League. It is feared that a government formed by the two populist parties would lead to a surge in public spending, adding to Italy’s record public debt and violating deficit rules set down by the EU. The markets are also worried by the League’s threats to pull the country out of the euro. For the moment, these two parties are busy trading insults with each other so it seems an unlikely outturn. Keep an eye on it though, as any change in sentiment could quickly turn into a negative for the euro which opens in Asia this morning at USD1.2395, AUD/EUR0.6300 and NZD/EUR0.5870.

AUD / CAD

Expected Range

The Canadian Dollar on Wednesday was by quite some margin the worst performer of all the major currencies we monitor closely here. USD/CAD reached an 8-month high just below 1.30, whilst GBP/CAD has hit 1.80 for the first time in 20 months. For the Antipodeans, AUD/CAD extended its gains to a 9-month high of 1.0120 whilst NZD/CAD at 0.9435 is the highest since early July. <br><br> As unanimously expected, the Bank of Canada left its target for overnight interest rates unchanged at 1.25%. Its Statement noted that, “Global growth remains solid and broad-based. In the United States, new government spending and previously-announced tax cuts are anticipated to boost growth in 2018 and 2019. However, trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks… While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target. Governing Council will remain cautious in considering future policy adjustments, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.” <br><br> The Bank of Canada statement didn’t directly mention NAFTA, it is clear that concerns about trade are a growing negative. Looking at interest rate markets, they aren’t fully pricing in the next rate increase - which would be the fourth in the cycle - until July whereas a month ago, overnight index swaps were pricing in at least one increase by May, with a good chance of an April hike. The Canadian Dollar has been the worst performing major currency so far in 2018 and it opens in Asia this morning at USD/CAD1.2920, AUD/CAD1.0105 and GBP/CAD1.7950.

GBP / AUD

Expected Range

The British Pound was lower for much of the day on Wednesday but a late afternoon rally left it little changed against a recovering US Dollar and the EUR. It was up around four-tenths of a point against both the AUD and NZD and more than three-quarters of a point higher against the CAD. It would be a mistake to read too much into the price action, however. For ten hours from 7am to 5pm London time, GBP/USD was stuck in just a 40 pip range from 1.3855 to 1.3895 as investors tired of over-interpreting the latest Brexit shadow-boxing. <br><br> The EU’s draft guidelines on the UK’s exit from the EU were presented by European Council President Donald Tusk. He struck a conciliatory but realistic tone saying, "The UK will be our closest neighbour and we want to remain friends and partners after Brexit - partners that are as close as possible, just like we have said from the very first day after the referendum." While the guidelines make clear that the EU wants "as close as possible a partnership" after Brexit, it is expected that there will be negative economic consequences. "Being outside the customs union and the single market will inevitably lead to frictions… Divergence in external tariffs and internal rules as well as absence of common institutions and a shared legal system, necessitates checks and controls to uphold the integrity of the EU single market as well as of the UK market… This unfortunately will have negative economic consequences." <br><br> The free-trade agreement (FTA) on offer "cannot offer the same benefits as membership and cannot amount to participation in the single market". Mr Tusk said that while Brussels wants an "ambitious" FTA with the UK with zero tariffs on goods but limited access for services, it will "not make trade between the UK and EU frictionless or smoother… It will make it more complicated and costly than today for all of us. This is the essence of Brexit." Responding to the publication of the guidelines, a Downing Street spokesman stressed they were a draft version which had not been formally published. "We look forward to seeing the final guidelines when published and hope they will provide the flexibility to allow the EU to think creatively and imaginatively about our future economic partnership," they said. The pound opens in Asia this morning at USD1.3890, GBP/AUD1.7770 and GBP/NZD1.9085.

AUD

Expected Range

The Australian Dollar couldn’t hold on to Tuesday’s best levels which had seen AUD/USD rise to 0.7835; the highest in exactly a week. After the knee-jerk sell off in reaction to weaker than expected GDP figures, the subsequent recovery took the Aussie in the European afternoon to a high of 0.7825 but by the end of the day it was struggling to hold on to a US 78 cents big figure. Another $10 off the gold price and a modest uptick in the VIX index of equity market volatility did nothing to encourage any buying of the AUD. <br><br> Australia’s economy grew at a slower pace than expected in the fourth quarter of last year as a rebound in household consumption was offset by a fall in exports. Gross domestic product grew just 0.4% q/q in the three months through the end of December, slowing from 0.7% growth in the previous quarter, according to the Australian Bureau of Statistics. That was below a median of economists’ estimates compiled by Reuters forecasting 0.6% growth. According to the analysts at Westpac, “Key surprises in these accounts were to the upside on consumer spending, including a significant upward revision to history, and a sharp 10.3% fall in private infrastructure… The drop in private infrastructure work is not cause for concern, it represents further progress in the mining investment wind-down. Consumer spending increased by 1.0% in the quarter, while Q3 was revised up from a very weak 0.1% to 0.5%. Annual consumer spending growth is now 2.9%. That moves the dial on spending momentum from ‘lacklustre’ to ‘slightly below trend’.” <br><br> Westpac’s fairly downbeat analysis went on to note, “The detail of this update will provide policy makers with some comfort. Consumer spending growth at close to 3.0% suggests that the economic expansion is more broadly based than previously assessed… That said, going forward, the household sector remains vulnerable at a time of relatively weak wages growth and high debt levels. A likely slowing in employment growth from the current hiring burst will act to reduce consumer spending power.” The Australian Dollar opens in Asia at USD0.7815, with AUD/NZD at 1.0735 and GBP/AUD1.7775.

AUD / USD

Expected Range

US stocks and its currency have been out of favour ever since President Trump’s proposed steel tariffs announced last week. The DJIA had already fallen 700 points in a couple of days but then fell another 400 points on Thursday and almost 300 more to Friday’s low around 24,270. A 750-point rally off the lows took the index back on to a 25k handle on Tuesday but it is now back down almost 500 points since then. The USD index, meantime, peaked last Thursday morning at 90.50 and has subsequently been back down to 89.00 - its lowest level in just over two weeks. – before a modest rally yesterday to 89.25. <br><br> In economic news, the US trade deficit increased to a more than nine-year high in January, with the shortfall with China widening sharply. The Commerce Department said the trade gap jumped 5.0% to $56.6 billion. That was the highest level since October 2008 and exceeded economists’ expectations of an increase to $55.1 billion. The politically sensitive trade deficit with China surged 16.7% to $36.0 billion, the highest since September 2015. The deficit with Canada soared 65% to a three-year high of $3.6 billion. President Trump in late January imposed broad tariffs on imported solar panels and large washing machines, even before last week’s announcement of import tariffs of 25% on steel and 10% on imported aluminum. <br><br> After the international trade numbers were released, the Atlanta Fed updated its Q1 GDP forecast. From an annualized pace of 3.5% prior to the data, it now has just 2.8% as the contribution of net exports is even more negative than it had previously assumed. Improving global growth and a weaker dollar have been supporting overseas sales of American-made goods, though not enough to outpace inbound shipments and the Atlanta Fed model currently has trade subtracting -0.59 percentage points from Q1 growth. The US Dollar index opens in Asia this morning around 89.25.

By Nick Parsons

AUD jumps back to 78 US cents as US Dollar falls across the board


AUD / CAD

Expected Range

We can’t deny the Canadian Dollar has few friends at the moment. But, we warned in our North American commentary on Tuesday that whilst, “there are plenty of opportunities for USD/CAD to move on to a new 1.30 ‘big figure’… one word of caution is the large number of investors who are now expecting it; suggesting that the market is already heavily positioned that way.” More than eight hours since we wrote that, USD/CAD has not only failed to break on to 1.30 but is now back on 1.28. AUD/CAD is only a few pips above where it opened yesterday morning in Sydney whilst even NZD/CAD is barely a quarter of a cent higher. Sometimes it pays to keep an eye on market positioning… <br><br> Ahead of Wednesday’s BoC meeting, a really excellent article in the Financial Post says that Governor Stephen Poloz’s narrative boils down to something like this: “There is more uncertainty in the world today. This heightened uncertainty is the sort you can’t measure or estimate. Geopolitics is an important factor, but so is growing uncertainty about the reliability of models to prescribe policy. Because of this, policy makers are injecting more “realism” and judgment into the narrative and nudging the decision-making process toward something that looks less like a mechanical exercise akin to engineering and more like risk management. More art, less science, in Poloz’s words.” The BoC Governor travelled to London last week to accept an award as ‘Central Banker of the Year’; something with which your author fully concurs. His acceptance speech said, “we have learned that it is far better to be open and honest about the uncertainty we face, as well as how we deal with it, rather than to just assume the uncertainty away and project a false sense of confidence.” <br><br> Before the Bank of Canada policy meeting – where a poll of 30 analysts by Reuters unanimously forecasts the central bank will hold its benchmark rate at 1.25 percent - we have the housing starts and labour productivity data. The Canadian Dollar opens in Asia this morning at USD/CAD1.2895, AUD/CAD1.0080 and GBP/CAD1.7915.

AUD / EUR

Expected Range

On Monday, the euro was unsure whether to focus on the diminution of political risk in Germany or the uncertainties of the Italian general election. On Tuesday, the Single European Currency put the Italian concerns firmly behind it; breaking above Monday’s high to reach a best level around 1.2410; the first time it had been back a 1.24 big figure in two weeks. <br><br> After Sunday’s Italian election, the two populist parties which emerged triumphant both claimed the right to form the next government. According to The Times, “Matteo Salvini, head of the anti-migrant League party, said that he had “the right and the duty” to lead a government after he took 17 per cent of the vote on Sunday, making him the senior partner in his right-wing coalition with Silvio Berlusconi’s Forza Italia. With a combined 37 per cent of the vote, their bloc is the largest in the new parliament. Minutes after Mr Salvini’s victorious press conference, however, Luigi Di Maio, head of the anti-establishment Five Star Movement, declared that his party, which came first with 32.6 per cent of the vote, was “the absolute winner” and should dictate the pace. “We feel we have the responsibility to create a government… We are sure the president [of Italy] will give us this opportunity.” <br><br> The combined electoral share of the two rival parties doesn’t quite form a mathematical majority but by gaining 49% of the total votes cast, it was a result which surprised all the political experts in the country. The Five Star Movement did best in the south where unemployment is highest and it had promised to pay a minimum €780 minimum wage to the jobless. The Northern League did best in the North (the clue is in the name!) where it received more votes than its presumed coalition party Forza Italia led by Silvio Berlusconi. The League and 5SM have both ruled out any power-sharing agreement so it now falls to the President to choose which one he will call to see if they can form a formal Coalition government. Failing that, new elections will have to be called. The euro open in Asia this morning at USD1.2400, AUD/EUR0.6305 and NZD/EUR0.5880.

AUD / USD

Expected Range

Up until the end of last week, the USD had a fairly close inverse relationship with the stock market: Equities up, dollar down and vice-versa. This broke down on Friday when both the stock market and the USD fell as a result of threatened retaliation to President Trump’s proposed steel tariffs. A huge rally in the stock market on Monday saw the USD trade essentially sideways but for much of Tuesday, stocks and the USD both headed south again as the DJIA fell 300 points in the New York morning. <br><br> It is not immediately obvious why a reported North Korean offer to ‘de-nuclearise’ should have been seen as negative for risk assets. The headlines came from South Korean National Security Office special envoy Chung Eui-yong, who was speaking to reporters in Seoul after returning from Pyongyang. He also said that "North Korea and South Korea agree to hold summit in April and Pyongyang vowed not to test any ballistic missiles or make further provocations during talks”. Instead, it seems more likely that the culprit for the simultaneous drop in stocks and the dollar was a report that former Goldman Sachs COO Gary Cohn will leave his White House job if Trump decides to go forward with tariffs on imported steel and aluminum. This itself might not be enough to cause the President to change his mind, although Bloomberg subsequently reported that Georgia Senator David Purdue (a well-known Trump ally) has made comments that President Trump is "open to changes on tariffs." <br><br> Keeping up with all the twists and turns of global foreign exchange markets is an exhausting business at the moment, though our clients around the world can’t say they weren’t warned about this extreme volatility. We wrote here 24 hours ago that, “All eyes elsewhere will be on the POTUS’ Twitter feed; a single tweet from Mr. Trump could easily move stocks and the US Dollar by one per cent in a matter of moments.” As we’ve said many times before, having orders already in place to profit from or mitigate the impacts of this volatility is a key component of a corporate risk management strategy.

GBP / AUD

Expected Range

After Monday’s table-topping performance, Tuesday was a much poorer day for the GBP which fell against four of the five other currencies we follow closely here. The biggest fall (-0.7%) came against the NZD but losses elsewhere came against the EUR, CAD, AUD and NZD. The low point for GBP/USD was early in the London morning at 1.3820 and the pair rallied exactly one cent when the USD came under pressure after the North Korean news. By the end of the day, however, the GBP had fallen more than a quarter of a cent from its high, leaving it back on a 1.38 big figure. <br><br> On Brexit, we said yesterday that, “the reaction of the EU will be more important than the routine criticisms from Opposition parties in Westminster.” The Guardian newspaper carried the story that Stefaan de Rynck, the main adviser to the EU’s chief Brexit negotiator, Michel Barnier, stressed that the rules of the single market required far more than her chief proposal – a mutual recognition of standards. In his speech, at a special LSE lecture in London last night, de Rynck said, “The EU has moved away in the wake of the financial crisis from mutual recognition of national standards to a centralised approach with a single EU rule book and common enforcement structures and single supervisory structures.” He also claimed EU businesses, faced by a choice, “are more concerned with maintaining the integrity of the EU single market than any loss of access to British markets.” <br><br> It had been expected that the EU’s guidelines for the EU-UK post-Brexit trade talks would be released on Tuesday, but publication of that document, which will constitute the EU’s fullest response yet to Theresa May’s Lancaster House speech on Friday, has been postponed. This might remove one of the near-term negatives for the GBP, though Arlene Foster (the head of the DUP Coalition partner) has tweeted, “Just concluded a constructive meeting with Michel Barnier. There are sensible solutions to the border question. Greater flexibility needs to be shown by Brussels. Unacceptable for Northern Ireland to be treated separately from rest of UK as set out in the draft EU legal text.” The pound opens in Asia this morning at USD1.3880, GBP/AUD1.7750 and GBP/NZD1.9025.

AUD / NZD

Expected Range

If a coherent narrative around the AUD on Tuesday is difficult, the New Zealand Dollar once again defies explanation. It was way out on top of the one-day leader board with NZD/USD printing on a 73 US cents ‘big figure’ for the first time in eight days. To some extent, this price action is similar to the AUD/USD pair but the Kiwi’s moves were amplified; as evidenced by a fall in the AUD/NZD cross from 1.0740 to 1.0705. NZD/USD ended the day 0.9% higher with GBP/NZD down 0.7%. <br><br> New Zealand’s statisticians have issued a reminder that today, March 6th, is census day in New Zealand. Already 1.2 million people have completed the census online and timing for online forms is averaging four minutes for the dwelling form and eight minutes for the individual form. Stats NZ has a target of 70 percent of all census forms completed online, but anyone can ask for a paper form instead. The Statistics Act 1975 requires everyone in New Zealand on census day to take part. People who choose not to fill out their census forms can be fined between $50 and $500. In 2013, Stats NZ announced about 100 people were being prosecuted for not completing their census forms whilst in 2006, the Government department prosecuted 72 people for not completing the census, resulting in 41 convictions. <br><br> Three of the ‘partial data’ which feed in to the calculation of the GDP numbers are out this week. Today it is Building Work Put in Place and Wholesale Trade whilst Thursday is the quarterly Survey of Manufacturing. For the moment, early estimates of the GDP number are for growth around 0.4-0.6% in the December quarter. The New Zealand Dollar opens in Asia this morning at USD0.7300 and AUD/NZD1.0710.

AUD

Expected Range

After Monday’s fairly quiet start to the week for the Aussie Dollar, Tuesday was quite a bit livelier – albeit some of the explanations for its movement look a little contradictory. Despite the efforts of some analysts to talk up the RBA’s view on wages, AUD/USD finished the Asia session lower than where it began. The pair was then very steady until lunchtime in Europe when an apparent offer from North Korea to talk about nuclear disarmament sent the USD sharply lower and boosted AUD/USD to a best level around 0.7835; the highest in exactly a week. Quite why this was a negative for stocks has yet to be fully explained but the DJIA then lost 250 points which, in turn, knocked a quarter of a cent off AUD/USD even as gold jumped by $15 per ounce. Fitting a coherent narrative to this price action across asset classes is tricky indeed! <br><br> To no-one’s great surprise, the RBA decided to leave the cash rate unchanged at 1.50 per cent; the 19th consecutive month of unchanged rates. Its Statement said, “The Bank's central forecast is for the Australian economy to grow faster in 2018 than it did in 2017. Business conditions are positive and non-mining business investment is increasing. Higher levels of public infrastructure investment are also supporting the economy. Further growth in exports is expected after temporary weakness at the end of 2017. One continuing source of uncertainty is the outlook for household consumption. Household incomes are growing slowly and debt levels are high.” The one thing that caught the attention of currency markets was the line that, “Notwithstanding the improving labour market, wage growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wage growth over time. Consistent with this, the rate of wage growth appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills.” <br><br> It’s a bit of a stretch to jump from “wage growth appears to have troughed” to a forecast either that wages will go up or an observation that they have indeed already risen. But, foreign exchange markets often get way ahead of themselves and this merest hint of a bit more optimism on wages was the main reason the AUD initially moved higher. In other data yesterday, the Q4 balance of payments data showed exports -1.8% and imports +0.5% which will subtract around 0.5% from today’s GDP data. Forecasts for this indicate a number around 0.6-0.7% q/q for an annual rate of growth around 2.6-2.7%. The AUD opens in Asia at USD0.7810, with AUD/NZD at 1.0710 and GBP/AUD1.7760.

By Nick Parsons

US stocks reverse strongly higher but AUD little moved ahead of RBA. GBP is best performer but EUR held back by Italian election


GBP / AUD

Expected Range

The British Pound had a good day on Monday, as an apparent truce between the warring factions of the Conservative party and some decent economic data brought a recently-rare combination of good news. As recently as last Thursday, GBP hit a low point 1.3720; the lowest since January 12th (the day after the ECB first spoke about changing forward guidance). The pair rallied on Friday as the USD came under pressure and the GBP extended its gains on Monday to a five-day high around 1.3870. Approaching the close of business in New York, the GBP was at the top of our one-day performance table with gains of around three-tenths of a percent against most major currencies and more than one per cent against the CAD. <br><br> Monday’s UK economic data were generally better than expected. The service sector PMI registered 54.5 in February, up from 53.0 in January, to signal the strongest rate of output growth for four months. Higher levels of business activity were attributed to the resilient economic backdrop and an associated upturn in new work. Markit noted that, “UK service providers experienced a modest rebound in business activity growth during February, supported by the fastest rise in new work since May 2017. The latest survey also pointed to stronger job creation across the service economy, with payroll numbers rising to the greatest extent for five months as firms sought to boost operating capacity in response to improved order books.” <br><br> As we trailed here yesterday, Theresa May gave a speech in the House of Commons on Brexit: essentially a mini-version of what she had said at the Mansion House last Friday. She then took questions for almost a couple of hours from all sides. There was more heat than light generated in the Q+A session, but expectations recently have been so low that the absence of any controversy was itself taken as reason for hope about future progress. As ever, though, the reaction of the EU will be more important than the routine criticisms from Opposition parties in Westminster. The pound opens in Asia this morning at USD1.3835, GBP/AUD1.7825 and GBP/NZD1.9150.

AUD / EUR

Expected Range

By last Thursday morning, EUR/USD had fallen to 1.2160; its lowest since mid-January. It began to rally as soon as President Trump announced his trade tariffs and having gained a full cent by the close of business in New York, it extended gains on Friday to a high of 1.2330. Yesterday, the EUR initially rallied on news that Angela Merkel could form a coalition government but subsequently gave back some of its gains as investors attempted to digest the results of the Italian general election. <br><br> With almost all the votes now counted in Italy, it seems that none of the three main factions will be able to govern alone. A majority of Italian voters have supported Eurosceptic candidates in the national election and projections suggest the two parties with the most gains, the eurosceptic Five Star Movement and the anti-migrant League, could reach a majority in at least one of the houses of parliament should they join forces. Observers say such a coalition would likely challenge EU budget restrictions and be little interested in further European integration. According to Reuters, “with the centre-right coalition on course for 37 percent of the vote and 5-Star for 31 percent, swift new elections to try to break the deadlock are another plausible scenario.” <br><br> In economic news, the final Eurozone PMI Composite Output Index posted 57.1 in February, down from January’s near 12-year high of 58.8. The headline index has signaled expansion in each of the past 56 months, although the latest reading was slightly below the flash estimate of 57.5. The manufacturing sector again registered stronger output growth than services. Both sectors also continued to enjoy the best periods of expansion for seven years, despite seeing rates of increase in output and new orders easing across the board in February. By country, Markit reported that rates of output growth were solid despite mostly slowing since January. Germany (three-month low) topped the rankings, followed by France (five-month low) and then Spain (eight month high). Rates of expansion in Ireland and Italy slipped to four- and three-month lows respectively. The euro open in Asia this morning at USD1.2325, AUD/EUR0.6300 and NZD/EUR0.5860.

AUD / NZD

Expected Range

For once, the New Zealand Dollar had an average, middle of the pack day on Monday; little changed against its Aussie cousin around 1.0740 and on the same 72 cents ‘big figure’ throughout the day against the US Dollar. For many businesses and traders, this will have been a welcome period of calm after the seemingly random daily movements over the past couple of weeks. Its biggest change came against the GBP which was way out at the top of the leaderboard, with GBP/NZD rising a full cent to a 5-day high of 1.9160. <br><br> In the first economic data of a fairly busy week, the ANZ Commodity Price Index rose 2.8% m/m in February, kicking on from the 0.7% gain in January. The lift was fairly broad-based, although the dairy group provided the major thrust, with a 6% gain and beef prices rose 3.9% m/m. ANZ’s analysts noted that, “New Zealand’s merchandise terms of trade hit a new all-time high in Q4. It represents a key purchasing power benefit for the economy. We are assuming that it stabilises around this level over the next couple of years. And while today’s figures only represent half of the equation, the lifts seen over 2018 to date do suggest there is a possibility of some further near-term upside.” <br><br> Away from the economic stuff, New Zealand’s National Institute of Water and Atmospheric Research (NIWA) reports that the Summer of 2018-18 was the hottest on record. Their cousins across the Tasman Sea may snigger, but the nationwide average temperature was 18.8 degrees Celsius, 0.3C above the previous 1934-35 record of 18.5C, and a significant 2.1C above the 1981-2010 averages. The hot summer was characterised by mean sea level pressures being higher than normal, bringing more northerly and northeasterly winds than normal - consistent with La Niña conditions. For the capital Wellington, there were 17 days when the temperature exceeded 25 degrees, whilst Alexandra reached 38.7°C on 30 January, the country’s hottest January temperature in 39 years. The New Zealand Dollar opens in Asia this morning at USD0.72425 and AUD/NZD1.0740.

AUD / CAD

Expected Range

We explained here on Friday that the announcement of US tariffs hits the Canadian Dollar in two ways. First, and directly, Canada is the world’s number one exporter of steel to the United States. Second, it throws into question the delicate renegotiation of the NAFTA agreement. Yesterday all these worries finally hit the CAD hard. USD/CAD rose to just under 1.2995; its highest since early July whilst AUD/CAD hit an 8-month high around 1.0080. <br><br> In a couple of fresh tweets on tariffs, President Trump said, “We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed. Also, Canada must.. ...treat our farmers much better. Highly restrictive. Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done. Millions of people addicted and dying.” Canada's Finance Minister Bill Morneau said the country is negotiating the North American Free Trade Agreement (NAFTA) with a partner that has "changed the terms of the discussion". Speaking at a women’s entrepreneurship event in Toronto, he stressed the tariffs are not advantageous to either country or national security. <br><br> Tuesday brings the Canadian PMI survey and on Wednesday morning before the Bank of Canada policy meeting, we have the housing starts and labour productivity data. On Friday, the Canadian labour market report will be released at the same time as the US employment numbers; plenty of opportunities for USD/CAD to move on to a new ‘big figure’. The Canadian Dollar opens in Asia this morning at USD/CAD1.2990, AUD/CAD1.0080 and GBP/CAD1.7970.

AUD

Expected Range

It has been a fairly quiet start to the week for the Aussie Dollar, stuck between better than expected incoming economic data and recovering stock markets on the one hand, and some nervousness around the RBA’s messaging and Q4 GDP figures on the other. AUD/USD has spent almost the whole of the past 24 hours in a relatively narrow band from 0.7725 to 0.7765, with both the VIX index of volatility and the gold price down a little from Friday’s closing levels. <br><br> In economic data, building approvals jumped 17.1% m/m in January, returning to growth following a revised 20.6% fall in December, according to the Australian Bureau of Statistics. That was above the 5% growth forecast in a Reuters poll of economists. Approvals for apartments, classed as private sector dwellings excluding houses, jumped 42.2% in January while approvals for private sector houses fell 1.1%. Meantime, CBA published their service sector PMI survey which rose to 54.2 in February from 53.8 in January, indicating a solid and accelerated rate of output growth. CBI noted that, “New order growth accelerated to a seven-month high, with the favourable demand environment encouraging firms to pass on higher cost burdens to their clients through greater output prices. Meanwhile, the rate of job creation remained weak relative to the series trend amid reports of increased labour costs.” <br><br> Even before today’s RBA Board meeting, there is plenty of data scheduled for release. First up at 9.30am is the weekly consumer confidence index, then a couple of hours later there’s the January retail sales report. As with other countries, a shifting pattern of consumption around Black Friday sales promotions in late November has tended to distort retail sales numbers but by the end of January, the y/y rate should see most of these distortions unwound. ANZ forecast a slight acceleration in the annual rate to 2.6%. Also at 11.30am, we get to see the December quarter current account and net export numbers; both of which will feed into Wednesday’s Q4 GDP number. Provisional estimates suggest around 0.6-0.7% q/q for an annual rate of growth around 2.6-2.7% but these are subject to revision after the last ’partial’ data. The AUD opens in Asia at USD0.7765, with AUD/NZD at 1.0740 and GBP/AUD1.7820.

AUD / USD

Expected Range

The US Dollar had a very mixed day on Monday: down against a buoyant GBP, unchanged against the EUR but quite a bit higher against the friendless CAD. The day began with equity index futures extending Friday’s losses – something with often lends support to the USD – but in the New York afternoon, stock markets caught a bid and the DJIA moved from being almost 200 points down to 300 points up. The USD index against a basket of major currencies traded in a relatively narrow range from 89.55 to 89.80 and finished pretty much around the mid-point of this at 89.65. <br><br> February’s ISM non-manufacturing index slipped very slightly from 59.9 to a still very strong 59.5; the 97th consecutive month of expansion in the service sector. Business activity rose 3 points to 62.8, whilst new orders rose 2.1 to 64.8 but employment fell 6.6 from an exceptionally high reading of 61.6 in January to 55.0 and prices paid fell 0.9 to 61.0. According to the ISM, 16 non-manufacturing industries reported growth and the majority of respondents’ continue to be positive about business conditions and the economy. <br><br> Although the Atlanta Fed updates its GDP forecast after the ISM manufacturing report, it doesn’t do so after the service sector index is published. Its next update will come on Wednesday after the international trade numbers are released. Currently, its forecast for Q1 growth is an annualized pace of 3.5%. Tuesday brings factory orders and durable goods numbers whilst New York Fed Chief Bill Dudley – who last week said that four rate hikes in 2018 would be ‘gradual’ - is scheduled to make a speech on the economy. All eyes elsewhere will be on the POTUS’ Twitter feed; a single tweet from Mr. Trump could easily move stocks and the US Dollar by one per cent in a matter of moments.

By Nick Parsons

US trade tariffs to dominate investor sentiment. RBA will leave rates unchanged on Tuesday but will GDP figures offer any more clues for the AUD?


AUD / EUR

Expected Range

EUR/USD ended last week almost exactly unchanged but it was far from dull. Having opened in Sydney on Monday around 1.2310, by Thursday morning it had fallen 1½ cents to 1.2160; its lowest since mid-January. The euro began to rally as soon as President Trump announced his trade tariffs and having gained a full cent by the close of business in New York, it extended gains on Friday to a high of 1.2330 to end the week up against the AUD, NZD, CAD and GBP. <br><br> In a speech on Friday night at Harvard University, European Commissioner for Competition, Margrethe Vestager, said the EU will respond to the tariffs, “to defend European industry, and the world trading system”. She called the Trump action, “one-sided protectionist measures, which hurt, not just jobs, but the whole system of rules that makes our global economy work.” According to Reuters, the United States had a $22.3 billion automotive vehicle and parts trade deficit with Germany in 2017 and a $7 billion deficit with the United Kingdom. The United States accounts for about 15 percent of worldwide Mercedes-Benz and BMW brand sales, while it accounts for 5 percent of VW brand sales and 12 percent of Audi sales. <br><br> Whilst trade threats will likely dominate the agenda in the early part of this week, we’ve also had the results of the German SPD’s membership vote on whether to enter a so-called “Grand Coalition” - or “Groko” as it’s known locally - with Angela Merkel. A majority of 66.02% of 463,723 eligible SPD members voted in favour of renewing the coalition that has governed Germany for the last four years. As we write this commentary, the results of the Italian General Election are not yet in, though political experts suggest the result appears likely be a hung parliament. The worst outcome for the currency would be a highly unlikely 5SM victory, though if it polls very well and enters a formal coalition, then the EUR will still be pressured. It closed on Friday evening in New York at USD1.2320, AUD/EUR0.6300 and NZD/EUR0.5880.

GBP / AUD

Expected Range

Brexit manages to be simultaneously a very fascinating and extremely tedious subject! Unfortunately, it is also the key driver of the GBP which ebbs and flows according to whether any final deal is seen to be good for the UK trade (soft Brexit) or something which leaves the country more isolated from the Continent of Europe but free to strike global trade deals (hard Brexit). Sentiment can shift strongly from day-to-day and even intra-day and last week was a very good example of how sensitive the GBP can be. From an opening level around USD1.3980 in Sydney last Monday, the GBP hit a best level around 1.4060 in the London morning but it was then downhill pretty much all the way to a low point on Thursday of 1.3720; the lowest since January 12th (the day after the ECB first spoke about changing forward guidance) A bounce was seen late Friday evening but the pound couldn’t hold on to a 1.38 ‘big figure’; closing around 1.3795. <br><br> The Prime Minister’s major speech on Friday – moved from Newcastle because of the extreme winter weather which gripped the UK last week - was high on aspiration but low on detail, even if it did acknowledge for the first time that totally frictionless trade with the EU will be a future impossibility. The good news in terms of domestic politics is that both wings of the Conservative Party have welcomed Theresa May’s new approach. The threat of losing a vote of confidence in the House of Commons appears much less likely than it did just a few days ago. However, what we haven’t yet seen is any reaction from Brussels which on Friday was busy crafting a response to President Trump’s trade tariffs. The GBP will now be driven by the extent to which the EU will seek to harden its own negotiating position ahead of the EU Summit in just over two weeks’ time. <br><br> For the week ahead, the main economic statistics come at the beginning and the end. Today we have the service sector PMI survey and on Friday it’s manufacturing and industrial production and the overseas trade balance numbers. In politics, as the BBC pithily notes, “There will be a flare-up in the Brexit phoney war on Monday when Theresa May takes questions from MPs about the policies in her big Brexit speech but after that things quieten down, with sporadic guerrilla activity in various select committees.” The pound opens in Asia this morning having closed on Friday at USD1.3795, GBP/AUD1.7770 and GBP/NZD1.9060.

AUD / NZD

Expected Range

The New Zealand Dollar continues to defy analysis or even explanation. On Friday ten days ago, it was bottom of our one-day performance table without any incoming news. Last week, it was top on Monday; again with no fresh incoming data or news catalyst. Both Tuesday and Wednesday it was bottom of the pile and on Thursday it was back in top spot. NZD/USD hit a low in Sydney on Thursday of 0.7190 but ended the day at 0.7250 and went on to a best level on Friday of 0.7275 before closing around 0.7240. Seemingly random swings from top to bottom place are frustrating for everyone but show the importance of placing orders in advance to benefit from volatility in offshore centres. <br><br> Just as New Zealand’s dollar is volatile, so too are some of its economic statistics. Last week, we saw that in January 2018, New Zealand recorded its largest deficit for a January month since 2007. This deficit contrasts with last month’s surplus, which was the largest ever for a December month. In separate data, ANZ’s monthly business survey turned less pessimistic, their jobs advertisement numbers turned down from recent highs yet consumer confidence rose. We also saw that New Zealand's visitor arrivals dropped for the first time in five years in January as fewer Chinese tourists visited the country, although though statistics officials said that was largely due to the timing of Chinese New Year, which this year fell in February. <br><br> It’s not just across the Tasman Sea where analysts are firming up their estimates of G4 GDP. Locally in New Zealand, the GDP numbers are not out until March 15th but this week there are three of the ‘partial data’ which feed in to the calculation. On Wednesday it is Building Work Put in Place and Wholesale Trade whilst Thursday is the quarterly Survey of Manufacturing. For the moment, early estimates of the GDP number are for growth around 0.4-0.6% in the December quarter. The New Zealand Dollar opens in Asia this morning having closed in New York on Friday at USD0.7240 and AUD/NZD1.0715.

AUD / CAD

Expected Range

The Canadian Dollar had another poor week. USD/CAD opened on Monday morning at 1.2645 and moved relentlessly higher to a best level on Friday around 1.2910; its first time on a 1.29 ‘big figure’ since November 30th and the highest level since mid-July. AUD/CAD, meantime, on Friday hit parity for the first time since August 18th and is up 3½ cents since its early-December low. <br><br> The announcement of US tariffs hits the Canadian Dollar in two ways. First, and directly, Canada is the world’s number one exporter of steel to the United States, followed by Brazil, South Korea, Mexico and Russia. Canada’s Foreign Minister Chrystia Freeland said it’s “entirely inappropriate” for the US to consider the country a threat to national security. “We will always stand up for Canadian workers and Canadian businesses... Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers.” Second, as a seventh round of NAFTA talks is underway in Mexico City, an escalation of a trade and tariffs war makes for a very difficult backdrop, throwing doubt on the whole process. <br><br> The week ahead could be quite busy for the Canadian Dollar, not just in terms of economic data and trade news, but also on Wednesday the Bank of Canada policy meeting. The BoC is unanimously expected to leave official rates unchanged at 1.25% after the 25bp hike in January and the accompanying statement will be closely read for what the Central Bank has to say about trade and the economy. Ahead of that on Tuesday is the PMI survey and on Wednesday morning the housing starts and labour productivity data. On Friday, the Canadian labour market report will be released at the same time as the US employment numbers. The Canadian Dollar opens in Asia this morning having ended the week at USD/CAD1.2880, AUD/CAD1.000 and GBP/CAD1.7770.

AUD / USD

Expected Range

The US Dollar had very much a week of two unequal halves: up for the first three and a half days and down for the remainder. Its index against a basket of major currencies opened on Monday morning at 89.50 and as stock markets fell, volatility rose, and Fed Chair Jerome Powell hinted at the possibility of four 25bp hikes this year, so the USD index hit a high on Thursday of 90.50; back to where it was before US Treasury Secretary Mnuchin’s remarks in Davos in late January. On Thursday afternoon, President Trump announced tariffs of 25% on imported steel and 10% on aluminium products. This surprise move sent stocks plunging once more, with the DJIA down more than 500 points and the VIX index above 20. This time, however, the USD did not respond positively. Amidst fears of retaliatory action from other countries, the index gave back around half a point to 90.00 and fell further on Friday to 89.60. <br><br> President Trump tweeted on Friday that, “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”. In response, most countries - including Canada, China and much of Europe - have issued statements condemning Trump's decision and threatened retaliatory action. The European Union vowed to “react firmly” with World Trade Organization-compliant countermeasures in the next few days. An EU Commission spokesman said that the EU already has counter-measures ready against US tariffs and stands ready to respond, whilst Canada, which is the biggest foreign supplier of steel to the US was furious: Ottawa said the US measures were “unacceptable.” <br><br> Far from retreating, President Trump instead doubled down on his threats. After hearing that the EU was considering specifically target measures on Harley Davidson motorbikes and Levi Strauss jeans, he tweeted that, “If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!” He went to say, “The United States has an $800 Billion Dollar Yearly Trade Deficit because of our “very stupid” trade deals and policies. Our jobs and wealth are being given to other countries that have taken advantage of us for years. They laugh at what fools our leaders have been. No more!”. We’d note that the last time the US started a trade war over steel in 2002, the S+P 500 fell almost 30% and the USD fell 20% over the next 18 months until the WTO ruled the tariffs were illegal…

AUD

Expected Range

The most well-known US stock market index, the Dow Jones Industrial Average, fell over 1,500 points in just a few days last week. When new Fed Chair Jerome Powell delivered his maiden semi-annual monetary policy testimony, the DJIA stood at 25,800. By Friday afternoon it was down at 24,260. Lower asset markets and higher volatility are usually bad for the Aussie Dollar. Add in a $20 drop for the gold price and it was no surprise to see the AUD weaken. From an opening level in Sydney last Monday morning around 0.7830, AUD/USD fell to a low on Thursday around 0.7715 before a recovery late on Friday to 0.7770. <br><br> In terms of economic data, the last week of February was something of a mixed bag. According to the Australian Bureau of Statistics, Capital Expenditures fell by 0.2% to $29.57 billion in the final quarter of last year, missing forecasts for an increase of 1%. Despite the lower than expected headline number, total CAPEX grew by 4% over the year, the strongest increase in five years. In more timely data, the Commonwealth Bank PMI index – a composite indicator designed to measure the performance of the manufacturing economy – edged slightly higher to 55.6 in February, from 55.4 in January, signaling a strong rate of improvement in the health of the manufacturing sector. Separately, the value of credit extended to Australia’s private sector grew by just 0.3% in January and over the year, total credit grew by 4.9%, the equal-lowest increase since May 2014. <br><br> The two main events for the Aussie Dollar this week will be Tuesday’s RBA Board meeting and then Wednesday’s Q4 GDP report. It would be one of the biggest surprises ever if the RBA changed interest rates and there’s no great need for any change of signaling from the Central Bank on future policy intentions. Ahead of this, we’ve been highlighting the lack of consensus on Australian interest rates from the ‘Big Four’ banks locally. The divergence narrowed somewhat last week as NAB revised their outlook. They wrote that, “Weak wages growth and slow progress reducing unemployment means it is now less likely that the RBA will raise rates twice in 2018. We now see the RBA raising rates only once in late 2018 – with November 2018 as the most likely start date for a gradual RBA rate hiking cycle”. The AUD opens in Asia having closed on Friday evening at USD0.7770, with AUD/NZD at 1.0715 and GBP/AUD1.7770.

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