• Aussie dollar closed the week on a higher note despite mixed data;
• Greenback under pressure after relatively dovish FOMC minutes, Yen supported;
• Sterling marked its first weekly decline since May as data failed to meet analyst forecasts.
The Aussie dollar struggled to hold onto $0.94 against the greenback last week as local and overseas data failed to inspire support in the local unit. Early trade proved supportive of the higher yielding currency, increased activity in the construction sector and heightened business confidence encouraged moderate buying activity. Subsequent consumer confidence beat the previous reading but a tough budget is clearly weighing on consumer sentiment as it continues to run well below trend. With little for the market to take away from US FOMC minutes mid-week, the local unit drifted higher, only for support to dwindle after local unemployment data. An increase in the number of job hunters led to an increase in unemployment, reading 6% (5.9% forecast) on an annualised basis. The major significance from the data was the fall in the number of full-time jobs and presented moderate resistance for the Aussie dollar for the remainder of the week. Combined with a fall in the Chinese trade balance, the Aussie ended the week with its tail between its legs.
As was widely expected from the Fed’s FOMC minute’s last week, the dovish tone continued and offered little guidance to markets on the future of interest rate movements. Overall there was little for the markets to takeaway other than what we have heard previously. The Fed saw balanced jobs growth and a firm GDP outlook, but of major interest were comments of markets remaining too complacent on the economic outlook, commenting that the Fed should be on the lookout for excessive risk taking. As the Fed continue to ponder over the timeliness of a rate hike, Philadelphia Fed President Charles Plosser (a renowned Hawk and advocate of a rate hike) commented that the Fed risks losing credibility by waiting too long to raise rates and ignoring a vastly improved labour market. Portuguese debt fears highlighted the continued fragility of the Eurozone, risk aversion favouring the Japanese Yen.
In a week of mixed economic data, Sterling struggled to hold onto 6-year highs against the greenback as markets question whether the UK economy has the ability to meet expectations. Of major significance on last week’s UK calendar was the Bank of England’s interest rate decision which, as expected came as a non-event. Rates are to remain on hold with no change in the asset purchase facility, and in the absence of an accompanying statement, markets had little to follow. Disappointing manufacturing data early last week was largely viewed as an anomaly, but still presented questions over when the BoE will look to raise rates, Sterling meeting moderate resistance throughout the majority of the week.
[B]Tom Williams
Sales Trader[/B]