Record Trade Surplus Boosts Australian Dollar

The Australian Dollar posted one the strongest gains of all the major currencies last week, after data showed that the Australian trade surplus rose to the highest level on record in December. The news seems to offset any talk of a possible rate cut later in the year, due to the previously reported weaker-than-expected consumer inflation data.

The AUD/USD finished the week at .7680, up 0.0134 or +1.77%.

According to data released from the Australian Bureau of Statistics, Australia posted a merchandise trade surplus of A$3.511 billion in December. This was better than the forecast for A$2.00 billion and was up from the upwardly revised A$2.040 billion surplus in November.

Monthly Exports were up A$1.679 billion or 5.0 percent to $A32.630 billion. Monthly Imports added A$209 million or 1.0 percent to A$29.120 billion.

U.S. Dollar

Talk of a possible trade war, a slightly dovish Fed and a weak U.S. Non-Farm Payrolls report helped pressure the U.S. Dollar last week.

The March U.S. Dollar Index finished the week at 99.842, down 0.684 or -0.68%.

Once again President Trump signaled to investors that he would like to see a weaker U.S. Dollar after he accused Japan, China and Germany of currency manipulation.

“You look at what China’s doing, you look at what Japan has done over the years. They play the money market, they play the devaluation market and we sit there like a bunch of dummies,” Trump said.

The Fed kept the downward pressure on the dollar when it did not raise interest rates after a two-day meeting on February 1. This was widely expected. What caused the weakness was that the Fed gave no indication of when the next hike might happen. As a result, many investors now feel that the number of potential rate hikes in 2017 will be reduced from three to two.

A weaker-than-expected U.S. Non-Farm Payrolls report for January further weakened the U.S. Dollar because it probably greatly reduced the chances of a March rate hike by the Fed. It also likely means the Fed will raise rates in June or December, which means the Fed may be following last year’s blueprint.

Non-Farm Payrolls rose 227,000, higher than the 175,000 estimate. The unemployment rate increased to 4.8 percent. The weakness in the report was attributed to average hourly earnings which were up just 3 cents and 2.5 percent on an annualized basis.

New Zealand Dollar

New Zealand Dollar investors shrugged off weak economic data and instead reacted to the weaker U.S. Dollar last week. The NZD/USD finished the week at .7311, up 0.0050 or +0.69%.

The New Zealand Unemployment Rate disappointed with a rise to 5.2%, well above the previous 4.9% and the 4.8% estimate. The Employment Change came in as expected at 0.8%, down from the previous 1.3%.

Japanese Yen

The Dollar/Yen lost ground last week. The weaker dollar attributed the most to the drop in value, despite efforts by the Bank of Japan to weaken the Yen.

The USD/JPY closed at 112.551, down 2.496 or -2.17%.

Early in the week, the Bank of Japan left monetary policy unchanged at the conclusion of its January meeting, a move that was widely expected by traders. Bank members decided to retain its quantitative and qualitative monetary easing, keeping interest rates unchanged at 0.1%. The BOJ also said it saw real GDP growth of 1.5% in the 2017 fiscal year.

The week ended with the Bank of Japan caving to pressure from rising interest rates by intervening to keep 10-year yields below 0.11 percent.