Despite the positive outlook for the US Economy the buck fell against its major counterparts last week, underscoring concerns by the Trump Administration of the strength in the dollar. On Tuesday Peter Navarro, Trumps’ head of National Trade Council accused Germany of Manipulating the EURO to favour its trade activities with its Partners, furthermore the President threatened to include devaluation clauses in its trade agreements with its economic partners; this immediately gave the Market the opinion that President Trump’s Fiscal Policies may be centred around temporarily weakening the Greenback to aid bilateral trade with its economic partners
In the last FOMC meeting the FEDZ forecasted three rate hikes in 2017, this increased the bullish theme for the dollar as more traders increased their long positions in the market therefore in Last week FOMC report, traders were looking for further hawkish confirmation from the FEDZ despite the dampening comments by the Trump Administration, unfortunately the FEDZ maintained a neutral stance, this the market interpreted as dovish bringing the Dollar under further selling pressure. With all these facts we expect the Buck to weaken in the near term.
The EUROZONE has being showing modest signs of growth as economic activity picked up modestly in Q4 as GDP came out better than Q3 with 0.5% growth rate, the PMI Manufacturing showed expansion for 6 straight months, CPI data also appreciated strongly beating expectations by a 0.3% increase to come out at 1.8%, although below the ECB’s forecasted target range this confirms the ECB’s believe that the Money Stimulus program is having its intended effect, nevertheless on the back of the upbeat data coming out from the EURO-AREA, we don’t expect a change in Policy because the Core inflation rate(Core-CPI) still remained flat, it is this data the ECB has decided to look at to determine if inflation has really worked its way into the Economy.
The Sudden rise In UK Inflation rate gave the market participants a possible expectation from the BOE to hike rate soon, the market priced in a possible hawkish comment from the Governor but where disappointed when Mark Carney though acknowledging increasing Inflation reiterated that Britian has not yet felt the impact of BREXIT so is too early to talk of policy tightening, this made the Cable longs to quickly cover their positions causing the CABLE to weaken, although modestly. The PMI’s also weakened modestly showing possible BREXIT fears as Consumers start to feel the impact of the weak Pound.
THE WEEK IN FOCUS:The Commodity Currencies take the Spotlight this week as the RBA & RBNZ decide on their rates, the market is expected to be moved by Political events as President Trump continues with his tweets and the UK Parliament continue on the process of deciding how to trigger Article 50.
AUD: (1.30AM) RETAIL SALES; Its expected that this data will be positive as we expect a spill over effect from the Christmas celebrations to filter into the outcome of this data.
NZD: (3.00AM) INFLATION EXPECTATIONS; With rising commodity prices, we expect this to be positive for the Kiwi, though this is not a market moving data.
AUD: (4.30AM) CASH RATE; No change is expected from this data, though we expect the RBA to acknowledge the rising inflation nevertheless we don’t expect a rate hike, but we may see a bit of hawkish undertone in the statement. We will look out for that as we should see the AUSSIE appreciate if that happens else we see a sell-off.
CAD: (2.30PM) TRADE BALANCE; CAD takes the spotlight with the trade balance and IVEY PMI, we expect a positive report here, strength expected in the CAD, better than expected sales result on the back of rising Crude Oil prices and just concluded festivity
CAD: (4.00PM) IVEY PMI; Difficult to predetermine this data nevertheless it can give us clues as to the Employment data coming out later in the week
NZD: (TENTATIVE) GDT PRICE INDEX; We must take watch as this data has a tendency to move Kiwi related pairs
USOIL/WTI: (4.30PM) CRUDE OIL INVENTORIES; We have been seeing increasing Inventories as US Companies increase their stockpile, nevertheless the outcome will determine how the market participants will react to the Crude.
NZD: (9.00PM) INTEREST RATE DECISION; No rate cut or hike expected, nevertheless the RBNZ will acknowledge the rising inflation, but with increasing headwinds and downside risk, we may see Governor Wheeler maintain a dovish stance on the Kiwi, considering the Bank just cut rates in November.
NZD: (10.00PM) PRESS CONFERENCE; this is the Market Mover, as traders try to glean information as to the future Policy path of the Bank.
NZD: (1.10AM) GOVERNOR WHEELER SPEAKS; This will definitely move the Kiwi more as Governor wheeler defends his Monetary policy before the Finance and Expenditure Select committee.
AUD: (1.30AM) NAB QUARTERLY BUSINESS CONFIDENCE; Positive outcome expected as business outlook has improved in AUSTRALIA following Global growth improvement and Increasing Commodity Prices.
GBP: (10.30AM) MANUFACTURING PRODUCTION; this is a Major Market Mover for the Cable, though expected positive outcome but it may be a bit dicey as Brexit fears is gradually finding its way into consumer spending
CAD: (2.30PM) EMPLOYMENT DATA; We need to watch out for this data, we will be looking at the IVEY PMI to give us a heads up as to how this data may look like.
That would be all for the week folks as always stay safe out there.