Weekly Brief

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Weekly Brief - 7th December 2018

EUR weekly currency update

There was no shortage of action or excitement. Between Monday morning and Wednesday morning Germany's DAX equity index dropped more than 6%, mirroring similar declines in Britain and elsewhere. The euro covered a range of one US cent twice as investors struggled to interpret what might or might not be a trade deal between America and China. Global sentiment was very much the order of the week as economic data went mostly unnoticed and investors turned a blind eye to riots in Paris.

Some of that sentiment related to the future course of US interest rates. Where at the beginning of the week it had been almost universally assumed that the US Federal Reserve would deliver another rate increase in 12 days' time, by the end of it the probability had fallen to just 60%. All in all, investors could not make up their minds; the euro was just about unchanged on the week against the US dollar and British pound.

USD weekly currency update

A volatile week in global equity and bond markets led investors to wonder at the commitment of the Federal Reserve to its pursuit of higher interest rates. A month ago they had fairly confidently assumed that a rate increase this month was a done deal and that there would be more hikes in 2019. By the end of the week even a December hike was no longer inked in; futures pricing put the likelihood at just 60%.  

The other imponderable stalking the dollar was the alleged trade agreement which Trump said he had struck with Chinese president Xi at last weekend's G20 summit. Whatever the shape of that deal, it was evident that there was no coherent story from Washington and Beijing. Any support for the dollar stemmed mainly from its status as a safe-haven but it was far from consistent. Investors did not know which way to jump and in the end the dollar was almost unchanged against sterling and the euro. 

CAD weekly currency update

Uncertainty weighed on the Loonie, which lost half a US cent and fell by more than a cent against sterling. The uncertainty was a combination of doubts concerning the trade deal allegedly struck by Trump with China at last weekend's G20 meeting, US Federal Reserve monetary policy, oil prices, turmoil in global equity markets and the future direction of Canadian interest rates. The last of those created the biggest problem for the Loonie. Whilst the Bank of Canada left its benchmark rate unchanged at 1.75%, as expected, the tone of its statement was uncharacteristically muted.  Investors got the idea that the BoC is in no hurry to tighten policy and that impression cost the Canadian dollar an immediate cent and a half.

Sterling had a surprisingly successful week, losing ground only to the safe-haven Swiss franc and Japanese yen. Developments in Parliament led investors to believe that the risk of a calamitous no-deal Brexit had been lessened, whatever the outcome of next Tuesday's vote in the Commons.

AUD weekly currency update

Any idea that the Aussie had turned a corner in the sentiment stakes was put to rest this week as it moved lower on a broad front. It held its own until Tuesday but then headed decisively south. The Aussie lost almost one US cent and it fell by nearly two against sterling. Its troubles were the result of a cocktail of confidence-denting developments. Reports of a trade deal between Washington and Beijing looked ever less plausible as the White House failed to spell out what had been agreed. Turmoil in global stock markets killed investors' appetite for "risky" currencies. When the Reserve Bank of Australia kept its Cash Rate benchmark unchanged at 1.5% its statement gave no hint of any increase in the pipeline. 

As for sterling, investors became less boot-faced about it after a government defeat in the Commons appeared to hand more control of Brexit decisions to Parliament. Therefore, or so the thinking went, a no-deal Brexit had become far less of a possibility.

NZD weekly currency update

True to form, New Zealand released vanishingly few useful economic statistics during the week. The terms of trade index, which measures the relationship between imports and exports, deteriorated to -0.3%. The fortnightly GDT index of milk prices was up by 2.2%. ANZ's commodity price indicator fell 0.6% in November.  On balance the numbers did not work well for the Kiwi.

It was external factors, however, which had the greatest potential impact on the NZ dollar. Optimism about a trade agreement between the US and China faded as the White House failed to spell out any details. Turmoil in global equity and bond markets sapped investors' appetite for risk. The safe-haven Swiss franc and Japanese yen were the week's top performers while the commodity-oriented currencies struggled. Nevertheless, the NZ dollar came out of it unscathed, actually strengthening by four fifths of a cent against sterling and adding a fifth of a US cent.  

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