4th Quarter GDP Numbers and the FED Put the Dollar in the Spotlight

The Aussie Dollar took a bounce early on, supported by a jump in inflation, with the Pound in the recovery room, as focus shifts to the U.S Dollar.
Bob Mason
U.S. Federal Reserve
U.S. Federal Reserve

Earlier in the Day:

Economic data released through the Asian session includes December retail sales figures out of Japan and 4th quarter inflation numbers out of Australia.

For the Japanese Yen, retail sales rose by 1.3% year-on-year in December, following on from a 1.4% rise in November, and coming in ahead of a forecasted 0.9% rise.

The Japanese Yen moved from ¥109.401 to ¥109.402 against the Dollar upon release of the figures, before rising to ¥109.34 at the time of writing, up 0.05% for the session.

For the Aussie Dollar, consumer prices rose by 1.8% in the 4th quarter, year-on-year, with the rate of inflation easing marginally from the 3rd quarter 1.9%, whilst coming in ahead of a forecasted 1.7%.

According to figures released by the ABS, the consumer price index rose by 0.5% in the December quarter of 2018, picking up from a forecasted and 0.4% rise in the 3rd quarter.

  • The largest contribution came from a 9.45 rise in prices for tobacco, a 6.2% rise in prices for domestic holiday travel and a 5% rise in prices for fruit.
  • Dragging on inflation included a 2.5% fall in prices for automotive fuel, a 3.3% fall in prices for audiovisual and computer equipment, a 1.9% fall in prices for wine and a 1.5% fall in prices for telecom equipment and services.
  • There was significant volatility in the prices for automotive fuel, which had risen by 3.3% in October, before sliding by 10.8% in November and then by the 5th in December to end the quarter down by 2.5%.

The Aussie Dollar moved from $0.71518 to $0.71811 upon release of the figures, before rising to $0.7193 at the time of writing, a gain of 0.53% for the session.

Elsewhere, the Kiwi Dollar was up by 0.13% to $0.6843, the gains coming in spite of a bearish start to the day in the equity markets.

The Day Ahead:

For the EUR, economic data scheduled for release through the day include French 1st estimate GDP numbers for the 4th quarter and December consumer spending figures and German’s January inflation numbers and February consumer confidence numbers.

On the stats, we will expect France’s GDP numbers and consumer confidence figures out of Germany to have the greatest influence, which is forecasted to be EUR negative.

Outside the stats, it’s a big day for the global financial markets, with the U.S – China trade talks set to resume and the FED to deliver its first monetary policy decision of the year.

Added to sentiment through the day will be the market response to the Brexit Plan B Parliamentary vote.

At the time of writing, the EUR was up 0.05% to $1.1439.

For the Pound, a quiet day on the economic calendar continues to leave the Pound in the hands of Brexit chatter.

Tuesday’s Parliamentary vote gives the British PM another journey to Brussels in order to make amendments to the Irish backstop, which has been the Brexit bugbear since negotiations began. The Pound took a hit, giving up $1.31 levels in reaction to the vote, though whether Britain will leave without a deal remains to be seen. Assuming the EU doesn’t budge on the Irish backstop, an extension, and a possible 2nd referendum could be on the cards.

At the time of writing, the Pound was up 0.21% to $1.3094, with the markets continuing to respond to the Parliamentary vote, early support coming on the expectation that a no-deal scenario is not an option for Parliament.

Across the Pond, it’s a busy day ahead for the Dollar. On the data front, key stats scheduled for release include January ADP nonfarm employment change figures, 1st estimate GDP numbers for the 4th quarter and December pending home sales.

Outside of the numbers, a resumption of trade talks between the U.S and China could provide further direction should updates be forthcoming, with the FED’s first monetary policy decision of the year also in focus.

The uncertainty will be whether there will be sufficient progress on trade talks to support market risk appetite through the week. Of greater certainty, but far from assured, is that the FED will continue drumming the more dovish drum beat. Softer growth in the 4th quarter would most likely give the doves the upper hand at the start of the year.

At the time of writing, the Dollar Spot Index was down 0.06% to 95.767.

For the Loonie, yet another quiet day on the data front will leave the Loonie in the hands of market risk sentiment and, in particular, any updates from the heavily anticipated trade talks between the U.S and China.

Positive updates would provide support to crude oil prices, which would be Loonie positive though, with many differences to be ironed out, there’s unlikely to be an agreed way forward within the 1st day of talks.

The Loonie was up 0.05% to C$1.3263, against the U.S Dollar, at the time of writing, supported by Tuesday’s bounce in crude oil prices.

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