Last week was a fascinating week in the foreign exchange markets, not least for the Australian dollar and the Japanese Yen against the US dollar.
Tuesday saw the Reserve Bank of Australia hold interest rates steady at 4.35%. Why they would raise or cut I don’t know as the RBA has tended to lag and mirror US interest rate policy for years. The aftermath of the decision appeared to be one of disappointment as AUDUSD was sold off, only for the pair to rally again on Wednesday as a strong Australian 3rd quarter GDP posted 2.1% vs expectations of 1.8%
The Japanese Yen was Thursday’s super mover after innocuous remarks by Bank of Japan Governor Kazuo Ueda to Prime Minister Fumio Kishida that the central bank will scrutinise the strength of domestic demand and next year’s wage outlook in guiding monetary policy, set off a rapid appreciation of the yen as speculators sensed Japan may finally exit negative interest rates. Friday’s Asian markets low of 142.50 was in fact the low of the day as markets patiently awaited Friday’s US Non-Farm Payrolls.
The Bureau of Labor Statistics monthly bulletin of Non-Farm Payrolls and other employment data did not disappoint as the headline number came in at 199,000 vs expectations of 180k for November. Hourly earnings were also up 0.4% vs a consensus view of 0.3%. The price action was a small dollar explosion higher, followed by a retracement and settling out the evening with a mildly bid dollar. For thrill seekers the JPY was all over the place, finally closing at 144.95
To this week then, and it will be action packed from Tuesday onwards, with no fewer than 7 central bank interest rate decisions (UK, US, Swiss, European, Norwegian, Brazil and the Philippines), UK and Australian employment numbers, US inflation figures and retail sales, ZEW German and Eurozone economic sentiment data and the Japanese Tankan.
Tuesday starts of with UK employment numbers with the unemployment rate expected to stay steady at 4.2% but average earnings expected to fall. The ZEW (German) survey is likely to show a decline from 9.8 to 8.8. The day’s big event at 1.30pm UK time is the US Consumer Price Index. The core figure is tabled at 4.0% consensus. CPI for November is expected to print 3.1% vs October’s 3.2%. Watch out for this number!! 3.2% and above and the Fed is still dealing with inflation, interest rates will have to stay higher for longer and the World’s central bankers will do little else than follow the Fed.
Overnight Tuesday/Wednesday the Japanese Tankan will be released -a survey of both large manufacturers and large non-manufacturers- The indexes are likely to be positive and little changed. Manufacturers expected at 9 and non-manufacturers expected at 27. UK GDP is next up and is expected to fall Year on Year for October to 0.6%. US Producer Price Index for November is forecast at 0.1% month on month. The Federal Reserve announces its interest rate decision in the evening. The market is looking for an unchanged number of 5.5%. Brazil announces interest rates later that evening (currently at 12.25%).
For Aussie watchers the key event on Thursday is Australian Employment numbers and the unemployment rate is expected to rise by 0.1% to 3.8%. The Philippine interest rate is likely to stay on hold at 6.5% as indeed are Swiss interest rates at 1.75%. The Swiss announce at 8.30am followed by the Norwegian Central Bank at 9.00am. Norwegian rates should stay on hold at 4.25%. The Bank of England is next to announce at midday with rates likely to stay on hold at 5.25% and then at 13.15 it’s the ECB announcement with rates expected to stay on hold at 4.5%. Shortly afterwards at 13.30 it’s US Retail Sales expected to drop 0.1% M.O.M for November. What a day and what a week! Apart from the numbers it pays to keep abreast of the various announcements from key Central Bank personnel which tend to follow the announcements.
Good Luck and Good trading!
Ben Robson is Head of Institutional E-FX at Swiss Finance Corporation. He is also the Amazon Best Selling Author of Currency Kings – How Billion traders Made their Fortune Trading Forex. McGraw Hill 2017
