The Aussie Dollar Sinks in the Early Hours. Will the Loonie Follow?

GDP numbers out of Australia added to the doom and gloom early on. The Bank of Canada could sink the Loonie later today. Stats support a more dovish outlook.
Bob Mason
Bank of Canada

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side. Key stats were limited to 4th quarter GDP numbers out of Australia.

Outside of the numbers, RBA Governor Lowe also delivered a speech at the AFR’s annual business summit. The speech related to the housing sector rather the policy.

For the Aussie Dollar,

In the 4th quarter, the Australian economy grew by 2.3% year-on-year. Coming up short of a forecasted 2.5%, the economy slowed from a 3rd quarter 2.8%. Quarter-on-quarter, the economy grew by 0.2%, which also came up short of a forecasted 0.5%. In the 3rd quarter, the economy had grown by 0.3%.

According to figures released by the ABS, the weaker growth figures were attributed to softer household spending and a decline in dwelling investment.

  • Household spending grew by 0.4%, following on from a string of soft quarterly numbers.
  • Investment in dwellings fell by 3.4%. The construction industry as a whole struggled, with construction industry value added falling by 1.9%.
  • Mining investment also fell, as projects shifted from construction to production phase.
  • Oil and gas production jumped by 7.7%.
  • Public investment supported growth in the quarter. Government final consumption expenditure grew by1.8%.

The Aussie Dollar moved from $0.70819 to $0.70674 upon release of the figures. At the time of writing, the Aussie Dollar stood at $0.7032, down by 0.73% for the session. Did the RBA just get that wrong?

Elsewhere,

The Japanese Yen stood at ¥111.76, against the U.S Dollar, up by 0.13% for the session. The Kiwi Dollar continued to reverse, following Tuesday’s 0.32% decline. At the time of writing, the Kiwi Dollar stood at $0.6761, down 0.44% for the session.

Solid economic data out of the U.S on Tuesday and disappointing numbers out of Australia weighed on the Kiwi and the Aussie. Some upside in the Yen came as the markets continued to fret over what terms of trade the U.S and China will agree to.

The Day Ahead:

For the EUR

There are no material stats scheduled for release through the day. The lack of stats will leave the EUR in the hands of market risk sentiment and views on tomorrow’s ECP press conference.

While economic data out of the Eurozone on Tuesday came in better than expected, downward pressure on the EUR remains in the event that growth in China and other major economies continue to weaken.

With a lack of economic data, the EUR will also be more exposed to any political chatter through the day. The Italian coalition government is on the ropes and Spain’s snap general election is not too far off.

At the time of writing, the EUR down by 0.13% at $1.1293.

For the Pound

It’s also a quiet day on the economic data front. With a lack of data to distract the markets, the Brexit chatter will continue to be the key driver.

The British Prime Minister is cutting it fine with her scheduled last-ditch trip to Brussels over the coming weekend. Reports of a lack of progress between EU and British negotiators weighed on the Pound in the early hours of this morning.

At the time of writing, the Pound was down by 0.36% to $1.3130.

Across the Pond

December trade figures and February’s ADP nonfarm employment change numbers are the key stats scheduled for release this afternoon.

While there will be a degree of interest in the trade figures, purely because of the U.S President’s likely scrutiny over the numbers, the focus will be on the ADP numbers.

Anything in line with or better than forecast should be enough for the Greenback, following yesterday’s service sector PMI numbers.

Labour market conditions are going to need to remain robust to support any optimism towards the U.S economy near-term.

Outside of the numbers, U.S President Trump will need to be monitored along with any further updates on trade negotiations. FOMC members are also scheduled to speak through the day, with Mester and Williams on the docket.

At the time of writing, the Dollar Spot Index was up 0.11% to 96.969.

For the Loonie

After a quiet start to the week, it’s a big day for the Loonie. 4th quarter labor productivity and December trade data will give the Loonie a nudge in the early part of the day. Based on forecasts, the Loonie could find itself under some pressure.

The Ivey PMI numbers for February, due out later in the day, tend to have a more significant impact on the Loonie. The numbers will be released at the same time as the Bank of Canada’s monetary policy announcement, however, which would limit the impact on the Loonie.

The main event of the day is the Bank of Canada’s monetary policy decision. While the BoC won’t be making a move on rates, the economic outlook will be key. Disappointing GDP numbers released last week are expected to leave the BoC on the more dovish side of the fence.

The Loonie was down 0.16% to C$1.3372, against the U.S Dollar, at the time of writing.

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