• Aussie gained on plans of increased Capital Expenditure from non-mining led industries;
• US economy showed contraction in activity, falling short of expectations;
• Sterling remained under pressure as rate hike expectations are scrutinized.
Despite yesterday’s capital expenditure data missing forecasts, data revealed forward spending plans for corporates were stronger than expected, sparking a strong rally in the Aussie dollar and saw the local currency reverse its recent downward trend. The data was viewed as a crucial test for the Australian economy in its ability to transition from a largely mining dominated economy as China continues to slow. The Aussie rallied from recent support of 92 US cents to eventually break 93 US cents overnight, assisted by a weaker greenback.
The dollar has remained well supported throughout the week after a recent glimmer of positivity from US data. Such support was quickly eroded as it was revealed that the US economy contracted for the first time in three years, reaffirming the view that Fed will be required to keep rates at record lows for longer and sent the greenback on a downward spiral. Losses were limited with jobless claims beating forecasts but the case for the Federal Reserve to maintain interest rates at record lows for longer has certainly heightened.
In what has been a dismal week for the pound, losses were extended yesterday as markets appear to have priced in a hike in interest rates and see Sterling struggling to advance from current levels. Considering gains over 9% in the last 12 months, it is not surprising to see markets taking some money off the table and many see expectations of a 25 basis point hike by April 2014 as priced in to Sterling value. The Euro capitalized on a weaker pound, gaining 3.4% ahead of next week’s ECB meeting. It is likely that upside will be limited for the Euro ahead of Thursday’s meeting as Draghi’s next steps remain unclear.
Tom Williams
Sales Trader