Donald Trump has yet again been causing turmoil in the currency markets, and that looks set to continue into the new week. Trade wars continue to be the major talking point, but Trump's war of words with Europe, his ‘love in’ with Vladimir Putin, and now his twitter threat to Iran will all make investors nervous. This also means that into the new week the search for the safe haven of dollar-denominated debt will continue and likely push the US dollar higher, despite Trump doing his best to stop the rise with his comments on monetary policy and currency manipulation last week.
This week’s economic calendar looks a little light of data out of the US until the end of the week, however housing data will be something minor to keep an eye on. The headline act of the week will come on Friday when we see the US Q2 GDP reading.
The big data release this week will be the European Central Bank rate decision and President Mario Draghi press conference. However, it is expected that this could be a bit of a non-event when it comes to the Euro. Mario Draghi has already given guidance on his plans with the tapering of the asset purchase plan as well as the deposit rates. Talk of rate hikes in 2019 will keep the markets attentive, and any hints that this could come later or earlier than summer 2019 will move the Euro, but we do not expect anything that forward-looking from the ECB.
The week ahead also sees Eurozone PMI readings as well as the German IFO data, both of which have the potential to move the single currency. However it will be Thursday’s meeting that remains in focus, as opinion remains split as to how quickly the bond buying process can be undone, so any clues here will give the Euro some direction.
It’s looking like a relatively quiet week ahead for economic data out of the UK, but whether that will be enough to give the Pound some respite after the punishing few days that it’s had remains to be seen. Last week’s suite of uninspiring numbers out of the UK on unemployment, inflation and retail sales have left Sterling trading at lows against most of its major counterparts.
With Brexit headlines still flowing and the Prime Minister still struggling to hold on to her position it’s easy to expect more downside over the next few days. However, beware a slight rally from the lows that can often happen after an extended sell off by a currency.
While the dark clouds remain over the PM they are also circling over the Governor of the Bank of England Mark Carney. The probability for a rate hike at the August 2nd meeting has dropped since last week’s poor domestic data, but remains around the 80% level. It seems that the decision on whether to hike rates in August could well come down to the wire.
Last week we saw solid Canadian retail sales and the surprise in the CPI reading that left the Loonie performing much better against the US dollar, especially after Donald Trump’s comments on his dislike of the Fed’s current stance on interest rates. With the positive domestic data, and the comments from Governor Poloz at the last rate setting meeting there is a chance that the Bank of Canada (BOC) will hike rates again this year. Although for this to happen we would need to see a de-escalation of external threats, mainly those sitting in the Oval Office in Washington.
This brings us on to the stagnant NAFTA negotiations, as there now seems an element of resignation to the CAD markets and it feels like a NAFTA deal is nothing but a distant dream. So with that in mind it will be a sole focus on the domestic data, and President Trumps trade wars that will drive price action. For now Trump’s gaze seems to be elsewhere, which could be good news for the Canadian Dollar this week.
Domestically the headline act this week is undoubtedly the second quarter Aussie CPI inflation numbers on Wednesday. Expectations are for the inflation to hit 1.9%, which is still outside of the RBA’s (Reserve Bank of Australia) 2%-3% target. Bar a big miss in this figure it’s likely that the Australian rate reaction this week could be muted. We do however have to look to both the US and the oil price for external factors to drive price action this week.
West Texas Oil (WTI) has seen a busy last 7 days and that looks set to continue after Trumps comments on Iran. The volatility in oil is something that could well be a driver for the Aussie and other commodity based currencies for much of this week.
The fundamental NZD outlook turned slightly favourable this week after the RBNZ’s core inflation outlook moved up to 1.7% for the second quarter 2018. That was enough to make the Kiwi ignore the noise coming out of the US at least in the short term. However, this week will see a quick return to US dominance in New Zealand due to the lack of domestic data on the agenda.
We will get June trade figures on Wednesday and consumer confidence for July on Friday, but that is the only announcement of any note. Add the US dollar moves on the movement in oil prices and we could see a fairly volatile week for the NZD without any domestic drivers.
In this edition of “Charts of the Week”, we will have a look at precious metals where the short-term outlook has turned brighter, as well as Bitcoin which is going through a major sell-off right now, followed by Oil – which is finally on the move after days of consolidation – and two major currency pairs.