Last week was supposed to be notably quieter in the forex market with the September central bank cycle mostly concluded. However, market volatility was increased due to the announcement by OPEC that they may be looking to freeze production later in the year and risk aversion became a factor over concerns for Germany’s Deutsche bank and the risk of contagion. Risk assets could struggle again next week as we learn more about the German financial crisis.
USD was slightly muted last week despite a positive week of data. Consumer confidence increased, durable goods improved and GDP figures were revised upwards. While all of these suggest improvements in the US the USD index remained flat over the week, suggesting that investors are far from convinced that interest rates are going to rise in December. Employment figures next week will have a big impact on the likelihood of a rate hike in December.
EUR also had some good figures last week which probably helped support the single currency in what has been a tumultuous week with the German banking system. The euro remained surprisingly strong considering talk of a Deutsche bank collapse, possibly due to investors believing the bank is too big to fail or they anticipate a bailout package, which to date has been ruled out by Germany’s chancellor Merkel.
JPY consumer spending dropped more than expected, down by 4.6%, with the consumer price index declining at a yearly figure of 0.5% in August. Core inflation, which excludes food prices, also fell 0.4%. With recent changes in monetary policy from the bank of Japan, it remains to be seen what impact this will have.
GBP had a quiet week last week with very little tier 1 or 2 data released. There were few new Brexit headlines over and above the continued pressure on the UK government to activate article 50. With very little likelihood of this happening any time soon the GBP remained relatively stable. The final reading on GDP was revised up which gave the GBP a small boost at the end of the week. Next week we have a number of key releases which should set the tone for coming months in terms of monetary policy.
CAD GDP beat expectations on Friday but reaction was relatively muted due to other indicators showing a continued weakness in the Canadian economy. With retail and manufacturing figures still struggling the bank of Canada is likely to remain accommodative for some time to come. The new OPEC agreement could boost oil prices which would boost the Canadian dollar but it is too early to determine whether that agreement will be maintained.
AUD is probably the only upbeat currency in terms of central bank rhetoric, albeit fairly range bound in line with commodity prices and oil in particular.
NZD had very few releases last week and continues to meander in a tight 100 pip range against the Dollar.
Source: Andi Thornton
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