Poor US inflation data unsettled the markets last week, causing the US Dollar to fall. The ‘Greenback’ strengthened during yesterday’s session, however, boosted by comments from the Federal Reserve’s Vice-President that inflation was near to the Fed’s target, regardless of the recent poor performance. All eyes are now fixed on Friday, when Fed Chair Janet Yellen will speak at the Fed’s annual Jackson Hole Symposium. Markets are expecting Yellen to suggest that there will be an interest rate hike at one of the upcoming policy meetings.
It has been a choppy few days for Pound Sterling, with the markets reacting strongly to the latest post-Brexit news. Wednesday saw the beginning of a rally after better-than-expected labour market data, with Thursday’s strong UK retail sales report continuing the uptrend. However, government borrowing figures disappointed the markets on Friday. With corporation tax paid in July, markets had expected a much stronger surplus than the data revealed. Also weakening the Pound on Friday were rumours that the UK government may trigger Article 50 to leave the European Union before April 2017. A denial by Downing Street on Friday restored confidence however and the Pound is continuing to advance today.
The Euro strengthened throughout the course of last week, helped by positive Eurozone data and a confident European Central Bank (ECB). Minutes from the latest ECB monetary policy meeting showed that policymakers did not consider making changes to monetary policy, adopting a ‘wait-and-see’ approach with regards to the effect of the UK’s Brexit vote upon the Eurozone economy. This cheered markets, even if expectations are for further monetary stimulus measures in the coming months. Today, measures of the French, German and Eurozone economies have largely shown better-than-expected output, although the Euro remains mixed.
Positive labour market data gave the Australian Dollar a boost on Thursday, although gains quickly disappeared as investors profited on the strong ‘Aussie’. Unemployment dropped against expectations to 5.7%, driven higher by over double the number of people entering employment than had been expected. Consumer confidence posted a strong upsurge last week, according to data released early this morning, although the Australian Dollar has been unable to make gains against some of the firmer currencies, such as Pound Sterling and the New Zealand Dollar.
New Zealand Dollar
A huge rise in milk prices helped boost the New Zealand Dollar last week, although the ‘Kiwi’ struggled to hold on to those gains. The GlobalDairyTrade price index was up 12.7% after the latest auction. The ‘Kiwi’ has been boosted today by comments from the Reserve Bank of New Zealand (RBNZ), despite the fact they indicated more interest rate cuts were incoming. Investors were cheered by the fact that RBNZ Governor Graeme Wheeler suggested that cutting too fast could risk overheating the already strong housing market. Confident that there will be no near-term rate cut to weaken the New Zealand Dollar, investors have returned to buying the ‘Kiwi’.
The Canadian Dollar put on a mixed performance over the course of the last few days, with a recovery in the oil markets helping the ‘Loonie’ strengthen overall. Crude oil has taken a significant hit over the past few weeks and plunged to 11-month lows at the beginning of August. A recovery to around US$50 per barrel helped improve demand for the Canadian Dollar. However, market hopes that the Organization of the Petroleum Exporting Countries (OPEC) would agree to a production freeze in an upcoming meeting have been dampened this week, causing oil to resume its downtrend.