IMF Global Outlook Weighs on Currencies

 Pound Sterling Softens as ‘Brexit’ Argument Enters the Media again

A busy week for UK politics kept the Pound volatile, with the currency strengthening verses the Euro but weakening against the commodity Dollars. The latest inflation figures surprised investors by printing above expectations, although few believe this will change the short term outlook for UK interest rates. Prime Ministers Questions (PMQ) became a technical discussion of tax, suggesting much of the fury and impetus for change generated by the ‘Panama Papers’ scandal had dwindled. The International Monetary Fund (IMF) warned that a ‘Brexit’ could cause ‘severe damage’ on a global scale.

Euro Weakened by IMF Call for Further Stimulus

Eurozone data continued to provide justification for trader fears of more stimulus from the European Central Bank (ECB). The latest industrial production figures for February showed a sharp slowdown on the year and a significant drop on the month. The latest IMF outlook predicted a slowing global economy and warned that ECB monetary stimulus would need to continue for some time. A confident outlook on inflation from ECB policymaker Ewald Nowotny on Wednesday helped the Euro partially recover.

Worsening Global Outlook Weighs on US Dollar Sentiment

With recent comments signalling that the Fed will focus more on global risks than on domestic data when making policy decisions, the US Dollar remained weak ahead of the IMF report. The news that the global outlook had been revised down, coupled with some poor data from China, weakened sentiment further. However, hawkish comments from the Fed’s Jeffery Lacker, suggesting there should still be four interest rate hikes in 2016, helped the USD to recover some of its losses on Wednesday despite a poor performance from the latest retail sales data.

Increasing Risk-Appetite Drives Australian Dollar Advance

Weak appetite for low-risk assets such as the US Dollar and the Euro, combined with a commodity rally, has seen the Australian Dollar strengthen over the past week. Mostly positive data, including a rise in investment lending and strengthening business conditions and confidence indexes, also helped the ‘Aussie’ advance. The latest labour market data has been extremely supportive, showing a surprise -0.1% drop in unemployment after the creation of 26k jobs in March.

New Zealand Dollar Strengthens on Dwindling Chance of RBNZ Rate Cut

The New Zealand Dollar has benefitted from the same appetite for high-yielding currencies that boosted the Australian Dollar. Positive domestic data also had an impact on the ‘Kiwi’, with the latest home purchase and food price data suggesting inflation could be on the rise. If this is the case, the Reserve Bank of New Zealand (RBNZ) may not cut interest rates in the near-term as markets are currently predicting.

Strong Oil and Optimistic Bank of Canada Boost Canadian Dollar

The Canadian Dollar managed to make ground on the majors over the past seven days thanks to a strong recovery in Brent Crude oil prices. The international benchmark has gained more than 16% since the 4th of April, hitting its highest level since the end of November 2015 on Tuesday. While the IMF revised Canada’s growth estimate down, the Bank of Canada revised their outlook up and predicted that additional spending on infrastructure by the government would provide a significant boost to economic growth.

Posted by Rewan

Rewan is one of an in-house team of currency analysts working at TorFX, a leading foreign currency broker. In his role Rewan studies the latest currency market movements and writes about the impact of global economics and politics on exchange rates for several online and physical publications.

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