Exchange Rate Review: Brexit, RBA & BOC Rates & Non-Farm Payrolls
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Exchange Rate Review: Brexit Talks, RBA and BOC Announcements, and Non-Farm Payrolls Ahead

04 December 2017 by FC Exchange

The Australian dollar could fluctuate against the pound (AUD/GBP), euro (AUD/EUR), and US dollar (AUD/USD) this week as the RBA makes its cash rate decision, the UK and EU continue with Brexit negotiations, and the US non-farm payrolls figure is released, say industry experts, FC Exchange.

GBP – Brexit talks continue

Last week

-Sterling made gains at the start of the week as EU negotiator Michel Barnier commented that Brexit talks could be close to a breakthrough.
-The pound experienced some softness on the Bank of England’s (BoE) press conference following the stress test results as Mark Carney warned about a no-deal Brexit. The stress test showed Britain’s banks are equipped to withstand major economic shocks.
-GBP/USD reached a two-month high on Brexit optimism, GBP/AUD hit a 14-month high.
-UK manufacturing activity increased to attain its best level in four years.
-UK consumer credit growth hit its lowest level in 18 months.
-Some speculation as to whether Theresa May’s rumoured offer will go down well with hard Brexit supporters in the Conservative party infiltrated the market, with the idea that a €60 billion bill could total €80-90 billion with further remunerations.
-Sterling gained the title of the best-performing exchange rate of the Group of 10 (G10) currencies in the past month as Brexit hopes buoyed the British currency. However, Friday saw it soften slightly as doubts crept in about how the Irish border would be managed. GBP/USD had breached the 1.35 level and GBP/EUR had risen above 1.14 earlier in the week.

Week ahead

Monday saw the pound rally once again to reach over 1.35 versus the US dollar (GBP/USD) and 1.14 against the euro (GBP/EUR). Last week the pound shed some of its strong gains on rumours that the UK government hasn’t been successful in reaching a deal with Ireland over the border – something that may hold up trade talks. Theresa May is heading to Brussels today to meet with EU representatives; a positive result could see sterling strengthen further, whereas a negative result this week could place pressure on the pound.

Regarding economic data, the Markit UK construction purchasing managers’ index (PMI) showed that Britain’s construction sector grew at its fastest pace in five months on Monday. The index reached 53.1 in November, up from 50.8 in October. The services PMI will be out on Tuesday, house price data will come to light on Thursday, but Friday’s likely to be the big market mover, with the UK’s trade balance, manufacturing production, industrial production, 12-month inflation estimate, and the latest gross domestic product (GDP) estimate scheduled for release.

 

EUR – Could Draghi move markets?

Last week

Eurozone unemployment reached an almost nine-year low at 8.8% in October.
-Eurozone household lending remained the same in October as it had in September at 2.7% on the year. Economists had expected a slight rise, but even though the figure held steady, it shows the sharpest increase since 2009.
-Eurozone inflation came in lower than expected, rising from 1.4% to 1.5% in November on an annual basis.

Week ahead

Tuesday will see the release of Eurozone retail sales numbers, followed by the retail PMI on Wednesday. Thursday could be an important day for the currency bloc with the final gross domestic product growth rate numbers for Q3. Additionally, European Central Bank (ECB) Chief Mario Draghi will also be speaking in Frankfurt which could create some euro exchange rate movement. Friday will close the quiet data week with German trade balance stats. Brexit negotiations are also likely to cause EUR/GBP fluctuations as Theresa May attempts to push EU negotiators towards discussing trade.

 

USD – Non-farm payrolls ahead

Last week

-Trump achieved a victory when the Senate approved significant tax cuts. US corporation tax will drop from 35% to 20%.
-More developments in relation to the sacking of former national security adviser Michael Flynn were revealed when it was announced he’d lied to the FBI about his Russian connections – betting institutions have suggested the odds of Trump being impeached are rising with more customers believing he’ll be leaving the White House soon.
-North Korean tensions flared again after the nation orchestrated another missile test which landed in Japanese waters and flew higher than any other test.
– ISM manufacturing data slipped from 58.7 to 58.2 in November.
– US consumer confidence rose from 126.2 to 129.5 in November.

Week ahead

The US dollar has started the week on the front foot following President Donald Trump’s tax reform success. The greenback is rallying against other majors on the news and may maintain some support in the near-term. The critical piece of data this week that markets will be watching for is the US non-farm payrolls number – a highly influential labour market indicator due for release on Friday. After several months of hurricane disruptions, analysts have suggested this month may make a comeback.

 

AUD – Influential growth figures in focus

-Last week the AUD experienced some weakness after being offset by the strength of the US currency.
-The Australian dollar begins the week with a bit more stability after the price of iron ore, Australia’s largest commodity, increased.
-Additionally supporting the Aussie is robust economic data, showing that businesses had higher wage costs, translating into better household incomes, and that companies had stocked up their inventories in Q3 contributing approximately 0.2% to economic growth. Job vacancies are also at a six-year pinnacle.
-On Tuesday the Reserve Bank of Australia (RBA) will announce its cash rate target.
-Wednesday will be an important day for the AUD exchange rate with the release of GDP numbers and construction data, before Friday’s trade balance stats.

 

CAD – BoC unlikely to increase rates at next meeting

-The Canadian dollar dropped to a four-week low against its US currency counterpart (CAD/USD) on the back of a wider trade deficit and increased momentum surrounding Trump’s tax plans.
-CAD regained some of its strength against the USD when the Organisation for Petroleum Exporting Countries (OPEC) extending its output cuts, taking them to the end of next year.
-This week the Bank of Canada (BoC) will make its last interest rate decision of the year on Wednesday.
-Canadian building permits data will be released on Thursday, followed by housing starts on Friday.

 

ZAR – Could politics impact ZAR?

-Political instability threatens the rand this week as the leadership race for the ruling African National Congress (ANC) steps up the pace.
-The rand clambered higher by around 3% last week after the South African nation managed to avoid a double credit rating downgrade.
-South Africa avoided the downgrade as signs pointed towards strength in Deputy President Cyril Ramaphosa’s nominations to become the new leader.

Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.

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