Market Info

US stocks recover sharply, lifting AUD to top spot on Monday. NAB Survey due today then watch UK CPI and US NFIB survey.

13/02/2018 | OzForex

13 February 2018

Australian Dollar (AUD)

The Australian Dollar actually finished top of our one-day performance table on Monday, though this might tell us more about how surprisingly quiet foreign exchange markets were than anything particularly new or insightful about the AUD itself. The scale of the absolute movements certainly wasn’t very impressive. AUD/USD opened in Sydney at 0.7810 and closed in New York barely 40 pips higher around 0.8150. Volatility as measured by the VIX index fell back two points to 25.2 and US 10-year Treasury yields edged down around 3bp from their 2.89% intra-day high; both of which helped the Aussie a little. It’s probably also the case that market positioning was still net short after the equity market decline of the last 10 days and there may have been some buying to square off these positions. Commonwealth Bank of Australia was quoted on newswires yesterday reaffirming their view that the AUD will strengthen this year. This is predicated on ongoing US Dollar weakness as the global economy continues to recover, which will support commodity prices. The bank says, “Leading economic indicators like the global manufacturing PMI remain consistent with world GDP growth of 3.6% and 3.4% in 2018 and 2019 respectively [but] we do not expect the Fed to shift to tight monetary policy settings and aggressively lift the target range for the funds rate — currently at 1.25-1.50% — above the neutral nominal policy rate of roughly 2.75% because of soft US inflation”. As for their exchange rate forecast, “Our base case scenario remains for AUD/USD to trade closer to 0.8300 by year-end.” The main domestic highlight today in terms of economic data is the NAB monthly business survey. Most attention always focuses on the headline-grabbing numbers around business confidence and conditions though there should be more interest on capacity utilisation and wage costs given that RBA policy this year will be determined more by the inflation outlook than by absolute levels of activity in the economy. The Australian Dollar opens in Asia at USD0.7850, with AUD/NZD at 1.0825 and GBP/AUD1.7620.

New Zealand Dollar

AUD/NZD expected range: 1.0750 – 1.0880

The Kiwi Dollar has been pretty much out of the spotlight given the volatility in global equity markets and most of its movement is being driven by the AUD/NZD cross than by any great shift in sentiment or investor appetite elsewhere offshore. Last Tuesday saw the pair hit a 6-month low of 1.0750 but having opened in Sydney yesterday around 1.0775, it then rallied almost half a cent to 1.0825. This move pressured the NZD/USD rate from a high around 0.7270 back to Friday’s closing level of 0.7245. Statistics New Zealand reported yesterday that consumers spent more on eating out and on hardware, furniture, and appliances in January 2018. This contributed to a 1.4% rise in total retail card spending in the month, when adjusted for seasonal effects. Spending rose across four of the six retail industries last month. The largest movements were: hospitality, up $15 million (1.5%) durables, including hardware, furniture, and appliances, up $14 million (1.2%) and fuel, up $9.0 million (1.5%). Core retail spending (which excludes the vehicle-related industries) rose 1.0% in January, after a 0.2% fall in December 2017. Cardholders made 141 million transactions across all industries in January with an average value of NZ$50 per transaction. The total amount spent across all transactions was NZ$7.0 billion. There is no economic data scheduled today but on Wednesday it’s food price inflation and the RBNZ’s own quarterly survey of inflation expectations which is released midweek. In last month’s survey the one and two-year expectations were at 1.87% and 2.02% respectively. The New Zealand Dollar opens in Asia this morning at USD0.7245 and AUD/NZD1.0825.

Great British Pound

GBP/AUD expected range: 1.7450 – 1.7750

By the time London traders headed for the train home, the DJIA was up almost 400 points so judged against this rally, the pound’s performance was pretty uninspiring. GBP/USD ended the day barely 20 pips higher around 1.3835, with the GBP losing ground against both the EUR and the AUD, though up against the CAD and NZD. In UK economic news, household spending fell by 1.2% in January compared with 12 months ago, according to research by Visa, the payments business. It is the first time that there has been a decline at this time of year since 2013. Individuals’ spending has now fallen in eight of the past nine months, with clothing, furniture and household goods bearing the brunt of consumers’ caution, according to figures on spending on Visa cards, which account for more than £1 in every £3 spent in the UK. Analysts at Markit, who compiled the survey said, “Subdued spending trends coincide with a slowing of the overall UK economy during 2017. Lingering uncertainties around the outcome of the Brexit negotiations are also weighing on consumer confidence, which has stayed well below the levels seen prior to the 2016 Brexit vote.” Speaking to MP’s yesterday, BoE MPC member Gertjan Vlieghe expanded somewhat on the conditions that might see a rate hike postponed, saying the Bank of England would likely reconsider its assumption of a “smooth” transition to Brexit if a breakdown in talks between London and Brussels causes big shifts in financial markets and economic indicators. Vlieghe said the Bank would watch surveys of businesses and households for big moves if expectations of a disorderly exit from the European Union became widespread. “And that might be the kind of material change that we’d (need to see to) say our assumption of ... a smooth transition is clearly not tenable any more.” The big event on Tuesday in the UK will be the January CPI figures. Inflation last month slowed from 3.1% to 3.0% and consensus looks for another drop to 2.9% in January. With BoE interest rate policy now aligned very closely with current and expected inflation, it should be a straight read-across for the GBP. The pound opens in Asia this morning at USD1.3835, GBP/AUD1.7625 and GBP/NZD1.9080.