Yesterday’s poor government borrowing figures brought into question Chancellor Philip Hammond’s ability to deliver the kind of Budget markets are looking for, weakening the pound in the process.
Both the Australian dollar and New Zealand dollar started last week on weak form thanks to gloomy outlooks on monetary policy. The TD Securities inflation estimate for Australia suggested inflation had weakened from 2.7% to 2.6%, while recent comments from the Reserve Bank of New Zealand (RBNZ) over the strength of the New Zealand dollar continued to weigh on NZD.
Both AUD and NZD saw demand pick up on Tuesday, however. The latest Reserve Bank of Australia (RBA) policy meeting saw policymakers maintaining their relatively upbeat outlook upon the economy, even if they didn’t make any changes to monetary policy this time round.
Meanwhile, the latest Global Dairy Trade auction saw diary prices rise 0.3% - a relief given that four of the previous five events had resulted in declining prices.
Below-forecast Australian GDP figures on Wednesday reminded markets that the RBA was likely to keep interest rates on hold for some time to come, even if they were feeling positive enough to not consider rate cuts. GDP clocked in at 1.8% instead of at 1.9% as forecast on the year, while quarter-on-quarter growth rose from 0.3% to 0.8% instead of to 0.9%.
Data for Australia disappointed on Thursday as well. The construction PMI fell from 60.5 to 55.3, while retail sales stagnated instead of growing 0.2% as predicted and the trade balance unexpectedly near-halved to A$460 million instead of rising to A$1 billion in line with estimates.
Recovering risk appetite and some positive domestic data helped AUD and NZD to recover somewhat towards the weekend.
Tuesday’s Australian business confidence and conditions surveys will show how the private sector’s outlook on the economy is holding up. Meanwhile, New Zealand food prices figures for August could suggest a strengthening or weakening of inflationary pressures.
Thursday’s Australian employment data is likely to cause significantly volatility for AUD, while NZD could fluctuate after the Business NZ performance of manufacturing index is published.
Phil joined the corporate foreign exchange department in 2000, and initially worked as a Senior Executive Dealer on the private client desk. In 2007, Phil moved to the corporate dealing desk as a corporate dealer and now oversees the corporate trading desk. Phil helps to manage the trading activity of the dealing desk and also works with a portfolio of corporate clients to help with their foreign exchange and risk management needs. Phil has attained FSA approval and has completed the Certificate in International Treasury Management (CertITM).
One Canada Square, Canary Wharf, London, E14 5AA, United Kingdom
D: +44 (0) 207 847 9464
Find Phil on Google+