From a sea of relative randomness, the pound emerged almost unharmed, an average of 0.2% lower against the other major currencies. There was nothing straightforward about its path, however. Sterling weakened by 0.9% against the safe-haven Swiss and strengthened by almost that much against the not-so-safe-haven Japanese yen, which lost its appeal to investors partly as a result of concern about the spread of coronavirus.
There was an uneasy start to the week after French foreign minister Jean-Yves Le Drian offered the gloomy prospect that Britain’s deliberate divergence from European standards will make a trade agreement difficult to achieve and that the two sides will “rip each other apart”. There were also worries that Britain’s commitment to using Huawei technology would hamper trade talks with the United States. The UK employment data were helpful to sterling but better-than-expected inflation and retail sales figures were all but ignored.
Although the euro was outpaced by the Swiss franc, it still managed to take fourth place for the week behind the Swissy and the North American dollars. On average it was 0.5% higher on the week, a cent higher against the pound and half a cent weaker against the US dollar. As investors grew lukewarm about the Japanese yen they transferred some of their safe-haven affection to the euro.
It was certainly not the euro zone economic data that brought in the buyers. They were not all bad, or even worse than expected, but the glimmers of light were not easy to spot. Germany’s economy stagnated in the fourth quarter of 2019. Gross domestic product for the euro zone expanded by 0.1% in Q4, putting growth for the year at 0.9%. Investor confidence remains wobbly: ZEW’s surveys of institutional investors in Germany and pan-Euroland found them less confident in February than a month earlier. In Germany, economic sentiment “decreased sharply in February, falling 18.0 points to 8.7”. For the euro zone as a whole, the reading fell 15 points to 10.4.
The North American dollars vied for first place, the Greenback losing out narrowly to the Loonie. It took a cent and a half off sterling and strengthened by half a cent against the euro, adding an average of 0.9% against the other majors. To an extent, the demand for a coronavirus haven played a part: the United States and Canada are geographically distant from China.
More obviously, the ecostats told a familiar story of how America is doing better than the East. US retail sales went up by 0.3% in January, not a ground-breaking increase but the fifth in six months. The Michigan index of consumer confidence improved by a point to a provisional 100.9, close to the expansion peak of 101.4 set two years ago. Housing starts and building permits were both stronger than expected in January. The minutes of January’s Federal Open Market Committee meeting raised no eyebrows. They simply confirmed that the current policy stance is likely to persist “for a time” and that the “threat of coronavirus warranted close watching”.
A 3.5% rise in oil prices did the Canadian dollar no harm, though the correlation was more than a little messy. Investors are unsure what steps OPEC+ will take to manage oil prices. The recent sensation was that where Saudi Arabia wants to cut production in response to reduced demand, Russia is happy to keep on pumping. There will be no OPEC meeting before next month, and that prospect served to separate the prices of oil and the Loonie in the second half of the week. Even so, the Canadian dollar strengthened by more than two cents against sterling and edged higher against the US dollar for an average gain of 1%.
The Canadian data were mixed. Manufacturing sales fell for a fourth consecutive month, declining 0.7% in December. The consumer price index data showed headline inflation picking up from 2.2% to 2.4% in January with the core rate (excluding fresh produce, fuel, mortgage interest etc.) edging up to 1.8%. The new housing price index put prices 0.2% higher on the year while Teranet said house prices were 2.1% higher than 12 months ago.
The Aussie had a tricky week but it still did better than the NZ dollar and Japanese yen. It lost one and a quarter US cents (1.8%) and fell a cent and a quarter against sterling (0.6%). On average it lost 0.8% to the major currencies. The Australian dollar’s biggest statistical test came with Thursday’s employment data and it fluffed it. On the face of it the numbers were alright: The loss of 32.7k part-time jobs was more than offset by the addition of 46.2k now full-time positions. There was also a pickup in the rate of employment to 66.1%, close to an all-time high. But the higher participation rate translated into a higher rate of unemployment, 5.3% against the previous month’s 5.1%, and investors were unimpressed.
They were no happier about the provisional purchasing managers’ index readings which appeared this Friday. Manufacturing was higher on the month but still negative at 49.8 while the services sector slid two points into the red at 48.4. The composite reading was also two points lower at 48.3.
Like all the other major currencies, the NZ dollar steadily lost ground to the advancing US dollar, eventually giving up one and a quarter US cents. It lost a cent and a half to sterling and fell an average of 1% against the other majors. The Kiwi was the week’s joint weakest performer, sharing last place with the Japanese yen. It did not have a great deal to say for itself, its movements being driven mostly by global economic hopes and fears – many of them shaped by the coronavirus story. New Zealand’s GDT index of milk prices fell to a five-month low and “analysts say the prices could see further downward pressure due to the impact on exports from the spread of the coronavirus in China”.
There was minimal guidance from the other NZ ecostats. Business NZ’s performance of services index looked good at 57.1, five points higher on the month. Visitor arrivals were soft in December, with coronavirus further dampening tourism from China. REINZ’s monthly property report spoke of the “busiest January in four years” with turnover up by 3.2% from the same month last year.