It’s all about the Dollar Today

Earlier in the Day:

The Asian session this morning was all about the Kiwi Dollar and the Yen, with New Zealand’s 3^rd quarter GDP numbers along with the Bank of Japan’s December monetary policy decision in focus.

There was some good news for the Kiwi Dollar, following the weak trade figures that were released on Wednesday, with the economy growing by 0.6%, ahead of a forecasted 0.5%. Adding to the upside for the Kiwi Dollar was a revision to 2^nd quarter growth, from 0.8% to 1.0%. The 3^rd quarter growth was supported by a pickup in the construction sector, with the sector reversing contractions in the previous 2-quarters of the year, rising by 3.6% in the 3^rd quarter.

The better than expected figures saw the Kiwi Dollar bounce from $0.69922 to $0.70113, before easing back to $0.7003 at the time of writing. Concerns over the economic outlook will continue to limit any material upside for the Kiwi Dollar over the near-term, with business and consumer sentiment towards the Labour-led coalition government weighing.

For the Yen, the Bank of Japan head rates unchanged and maintained its pledge to purchase ¥80tn in government bonds each year, which was in line with market expectations and there were no suggestions of a shift in monetary policy on the horizon, though there has been talk of a possible shift next year in the run up to this morning’s decision, supported by the 1 dissenter in this morning’s vote.

Of greater interest to the markets will be Bank of Japan Governor Kuroda’s press conference later this morning.

Despite the Bank of Japan’s hold and non-committal stance on shifting monetary policy, the Yen was flat against the Dollar at ¥113.4, while the Aussie Dollar slipped 0.08% to $0.7661 as yield differentials narrowed in favour of the U.S Dollar following the tax reform bill vote on Wednesday.

In the equity markets, it was a mixed bag, with the ASX200 and Nikkei ending the day in the red, while the Hang Seng and CSI300 recovered from a start of the session drop to gains of 0.49% and 1.15% respectively at the time of writing.

While the U.S and European markets weighed on sentiment through the session, rising oil prices and a recovery in the tech sector helped the Hang Seng, as market panic over the Chinese government halting asset managers from being able to invest into the HK market also eased through the week.

The Day Ahead:

There are no material stats out of the Eurozone this morning to provide direction for the EUR, which has been on the front foot through the current week. It’s been more about the Dollar than any material shift in sentiment towards the Eurozone economy that has led to the upside in the EUR.

Market resilience to Merkel’s lack of progress in forming a coalition with the SDPs has been pivotal in the EUR’s direction this week, with news hitting the wires that Merkel will be giving coalition talks until mid-January. The SDPs may have unexpectedly found themselves in a precarious position. The need for the SDPs to step in and support Merkel is in the interest of the German people has raised the stakes. The SDPs could face a backlash from voters if they pull out of talks and a snap General Election is called. Voters may well consider the SDPs to have a lack of interest in the German economy and population if talks break down. Merkel has been adamant that the she will not agree to a minority government and may well have set up another term.

At the time of writing, the EUR was down 0.03% to $1.1868, with direction through the day hinged on the Dollar and any noise from Capitol Hill.

For the Pound, it’s another quiet day on the data front, with Brexit talks currently focused on the post March 2019 transition period for the UK to fully shift to the Brexit blueprint to be agreed upon. The EU has put a 21-month time limit on the transition period for now, while the government is looking for 24-months and businesses are asking for longer. While the markets may be more interested in how trade talks will progress, the fact that the two sides are not able to come to an agreement on relatively similar time frames is a concern.

The markets have lived and breathed Brexit for over 18-months now and talks are now getting onto key topics, which will likely see Pound volatility pick up. On Wednesday, the IMF revised down its growth forecasts for the UK economy for this year and next, which will be another negative, though we have yet to see the risk of a recession just yet.

At the time of writing, the Pound was up 0.07% at $1.3366, with the Pound on the back foot early in the session following the release of the UK’s GfK Consumer Confidence numbers for December. Consumer confidence hit a 4-year low, with uncertainty over Brexit weighing.

Across the Pond, focus will be on the Oval Office and the tax reform bill, with the bill now waiting for the U.S President’s signature. We can expect plenty of fanfare over the signing, with the U.S administration likely to parade the success in finally delivering one of its election campaign pledges.

Economic data out of the U.S will also be a factor today, with 3^rd estimate GDP numbers for the 3^rd quarter and December’s Philly FED Manufacturing Index numbers scheduled for release.

At the time of writing, the Dollar Spot Index was up 0.08% at 93.383, with uncertainty over whether the reform bill will in fact boost the economy holding back the Dollar on Wednesday. The markets will also need to consider a possible government shutdown tomorrow if the administration is unable to extend funding until mid-Jan.

For the Loonie, it’s a busy day on the calendar, with key stats scheduled for release this afternoon including ADP nonfarm employment change and inflation figures for November, together with October retail sales data.

At the time of writing, the Loonie was up 0.04% at $1.2830, with today’s stats likely to have a material influence on sentiment towards BoC monetary policy.