Economic Update
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Spotlight on AUD & NZD
6 minute read27 November 2023
GBP
Chancellor Hunt’s Autumn Statement didn’t throw up too many surprises last week, as the government’s press office sign-posted many of the expected changes beforehand, and the small amount of GBP data releases this week could mean that attention in the FX market is elsewhere. However, Bank of England Governor Bailey is speaking on Wednesday afternoon; he may shed some light on his view on the Autumn Statement and how he sees that affecting inflation and the economy as a whole.
EUR
The European Central Bank has been increasingly worried about economic growth in the Eurozone and, in trying to walk the tightrope of bringing inflation down without sending the region into recession, has opted not to raise interest rates further at recent meetings. However, with German and Spanish inflation data released this week, we will get a clearer picture of how prices are rising in two of the largest economies in the region and, if the central bank needs to do more to control inflation. The US dollar has seen much of the gains made since July wiped out over the past few weeks versus both GBP and EUR. With GBP/USD tipping over 1.26 today and EUR/USD almost returning to 1.10, the USD dominance has certainly eased off since the beginning of November. There are many reasons why this trend is forming now, but a large portion of the USD weakness could stem from a move into riskier assets, such as equities, now that global interest rates are likely to stay flat for a while. However, the growing uncertainty of the broader effect on the Middle East from the Israel-Hamas conflict is a vast unknown hanging over global financial markets. It could cause a significant reversal of this trend in the future. AUD & NZD are in the spotlight this week, with Australian consumer price index data released early Wednesday morning, closely followed by the Reserve Bank of New Zealand’s interest rate decision and policy statement. Prices in Australia are rising quickly, forecasters suggest at 5.2% year-on-year, despite interest rates remaining high at 4.35%. The RBNZ are unlikely to raise interest rates further than the current level of 5.5%. However, there could still be some volatility in FX markets this week in the region, with the new National-led government having finally been sworn in six weeks after winning the general election. The centre-right National Party has formed a coalition with two minor parties, New Zealand First and Act, and will soon set out its policies for the next parliamentary term. The new government have already ruffled some feathers internationally by reversing the previous government’s world-leading smoking ban policy. USD
AUD/NZD
This commentary does not constitute financial advice and all quoted rates are sourced from Bloomberg.
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