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UK and U.S Inflation and FED Chair Powell Put the GBP and USD in Focus

The RBNZ held rates steady, leading to a surge in the Kiwi, while the Greenback was under early pressure following Trump’s Tuesday speech…
Bob Mason
Smart city and global network concept. IoT(Internet of Things). ICT(Information Communication Technology).

Earlier in the Day:

It was a relatively busy economic calendar through the Asian session this morning.

Key stats included November consumer confidence and 3rd quarter wage growth figures out of Australia.

On the monetary policy front, the RBNZ delivered its final interest rate decision of the year.

On the geopolitical risk front, Trump’s speech at the Economic Club in New York on Tuesday night tested risk appetite and the Greenback.

While stating that the U.S was close to an interim deal with China, Trump also stated that the U.S would substantially raise tariffs if Beijing does not agree with America’s trade terms.

For the Aussie Dollar

The Westpac Consumer Sentiment Index rose by 4.5%to 97.0 in November, partially reversing a 5.5% slide in October.

According to the Westpac report,

  • The uptick was supported by the RBA’s decision to hold rates unchanged in November, with the previous month’s decline attributed to the RBA’s last rate cut.
  • Looking at the numbers:
    • The sub-index for family finances vs a year ago rose by 5.2%., with finances for next 12-months up by 5.7%. In spite of the monthly rise, both remain well below their long-run averages.
    • Economic conditions the next 12-months rose by 4%, with economic conditions next 5-years up by 5.2%. The next 12-months sub-index was down 13.1% year-on-year, while the next 5-years was down by 10.2%.
    • The time to buy a major household item sub-index rose by 3% but remained 4% below its August level, which is negative heading into the holiday season.
    • On the labor market front, the Unemployment Expectations Index rose by 3.6% and was up by 13.4% year-on-year. This was the highest level since June 2017.
    • The Time to buy a dwelling index increased by 2.1%, whilst the House Price Expectations Index fell by 1.6%, the first fall since May.

The Aussie Dollar moved from $0.68415 to $0.68431 upon release of the figures, which preceded 3rd quarter wage growth numbers.

Wage growth rose by 0.5% in the 3rd quarter, which was in line with forecasts. In the 2nd quarter, wage growth had risen by 0.6%.

According to the ABS,

  • Private sector wage grew by 0.5%, with public sector wages also rising by 0.5% in the 3rd
  • Year-on-year, wages grew by 2.2%, softer than a 2.3% rise in the 2nd
  • Private sector wage grew by 2.2%, with public sector wages up by 2.5%, through the year to the September quarter.

The Aussie Dollar moved from $0.68370 to $0.68307 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.13% to $0.6850.

For the Kiwi Dollar

The RBNZ left rates unchanged at 1.0% in the final interest rate decision on the year. The markets had been mixed on what was to come.

According to the RBNZ rate statement,

  • Employment remains around its maximum sustainable level while inflation remains below the 2% target mid-point but within the target range.
  • Economic developments since the August Statement did not warrant a change to the already stimulatory monetary setting.
  • Economic growth continued to slow in mid-2019, reflecting weak business investment and soft household spending.
  • Growth is expected to remain subdued through the remainder of the year.
  • Members anticipate a lift in economic growth through 2020, however, supported by fiscal and monetary policy.
  • A reduction in retail lending rates supported the outlook for consumption and broad investment, with the lower exchange rate also positive.
  • The Committee noted the decline in one- and two-year inflation expectation figures. However, long-term inflation remains anchored to close to the 2% target mid-point. Market measures of inflation expectations have increased from their lows.
  • It was agreed that recent rate cuts were transmitting through the economy and that it would take time to have its full effect.
  • The Committee did note, however, that the risks to the economy in the near-term remained tilted to the downside.
  • Further monetary policy stimulus would be introduced if warranted.

The Kiwi Dollar moved from $0.63361 to $0.64149 upon release of the rate statement and monetary policy statement. At the time of writing, the Kiwi Dollar was up by 1.25% to $0.6410. Next up, is the RBNZ press conference.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.08% to ¥108.92 against the U.S Dollar, while

The Day Ahead:

For the EUR

It’s another relatively busy day ahead on the economic calendar. Key stats due out of the Eurozone include finalized October inflation figures out of Germany and the Eurozone’s September industrial production numbers.

We would expect the industrial production figures to have the greatest influence on the day.

Outside of the numbers, we can expect the markets to shift focus to FED Chair Powell’s testimony later today, which will influence.

At the time of writing, the EUR was up by 0.04% to $1.1013.

For the Pound

It’s yet another busy day ahead on the data front. Key stats include October inflation figures that will provide the Pound with direction.

Expect any weak numbers to weigh heavily on the Pound following 2 MPC members voting in favor of a rate cut last week.

On the geopolitical risk front, UK politics will continue to grip the Pound, with the opinion polls key for now.

At the time of writing, the Pound was up by 0.09% to $1.2856

Across the Pond

It’s a relatively busy day on the economic calendar. Economic data out of the U.S include October inflation figures.

While we can expect the Dollar to respond to the numbers, any moves will likely be short-lived as the markets look ahead to FED Chair Powell’s testimony.

The Dollar and the U.S major indexes will be in the hands of the FED Chair late in the day. Following the pickup in service sector activity in October, according to the ISM numbers, Powell could be on the optimistic side. Particularly as the U.S and China edge closer to a phase 1 agreement.

The Dollar Spot Index was down by 0.01% to 98.298 at the time of writing.

For the Loonie

It’s another quiet day on the economic calendar. There are no material stats due out of Canada to provide the Loonie with direction.

Market risk appetite and crude oil inventories will provide direction throughout the day.

The Loonie was down by 0.04% to C$1.3238, against the U.S Dollar, at the time of writing.

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