• A$ approached $0.89 mid-week as US dollar took a breather, closed week flat;
• Sterling remains buoyant, however struggles to make headway against firmer greenback;
• Euro losses limited after weakened German data and Draghi pledge for monetary stimulus;
• Greenback takes a breather ending 12 weeks of consecutive gains.
The Aussie dollar began the week broadly supported as markets took advantage of US dollar gains following the previous week’s non-farms data. There was little to take away from the RBA’s rate decision and accompanying statement on Tuesday and other than dropping their tagline, ‘A$ remains above our estimates of fundamental value’, the statement gave few clues toward the RBA’s next policy moves. Glenn Stevens refused the opportunity to talk down the A$ any further but did cite his old favourite of, ‘remains high by historical standards’. An upswing in the local currency to highs approaching $0.89 midweek was largely due to a weaker US dollar rather than anything fundamental from the local economy and gains were soon reversed as the US dollar gained traction towards the end of the week. With few high profile domestic releases from the local economy this week and a Japanese holiday today, trade will likely be thinner than usual this morning with the A$ taking its cues from Chinese trade balance numbers due for release today.
Sterling managed to creep higher against a weaker US dollar last week, opening the week at $1.5950 to eventually reach $1.6226 mid-week, however gains were short lived as greenback strength returned later in the week. Industrial and manufacturing data both read stronger than expected in August and painted a somewhat brighter picture for the UK economy midweek, however the UK’s economic recovery continues to be scrutinised by policy makers citing fragility in the UK’s economy. Given the economic headwinds across the Eurozone, downgrades in global growth forecasts from the IMF and political hurdles next year as general elections take place, Sterling remains vulnerable to corrections, particularly as US monetary easing is set to end this month.
The Euro managed to survive for another week, opening the week at $1.25 and trading within a whisker of $1.28 mid-week as dollar strength faltered. Weakness across the union remains evident, last week data from Germany showed factory orders unexpectedly dropped in August, as did industrial production and the Euro was fortunate when up against a weakened US dollar. It wasn’t until Mario Draghi pledged once again to expand monetary stimulus if required that the Euro started to succumb to selling pressure but still managed to close +0.9% against the greenback for the week.
Twelve weeks of consecutive gains for the US dollar came to a halt last week as markets pared bets on when the Federal Reserve will begin to lift interest rates. A month ago, markets had priced in a 59% chance that the Fed will lift rates by July 2015, now markets are only pricing in around a 33% chance after the Fed insisting that remains are to remain on hold for a ‘considerable time’, despite the fast approaching end to monetary stimulus. Stronger than expected weekly jobless claims on Thursday night saw a return to dollar support but markets have become confused by language used in FOMC minutes which continue to suggest that the Fed are in no rush to risk derailing a broad economic recovery by raising rates too soon. Economic uncertainties saw the safe haven Japanese Yen favoured throughout last week which opened at 109.70 to close the week at 107.64.