The Weekly Wrap – Monetary Policy Left the Aussie and Kiwi Dollar in Deep Red

The Stats

It was a busy week on the economic calendar, in the week ending 28^th January.

A total of 57 stats were monitored, following 57 stats in the week prior.

Of the 57 stats, 27 came in ahead forecasts, with 25 economic indicators coming up short of forecasts. 5 stats were in line with forecasts in the week.

Looking at the numbers, 22 of the stats reflected an upward trend from previous figures. Of the remaining 35 stats, 33 reflected a deterioration from previous.

For the Greenback, it was a 2^nd week in the green. In the week ending 28^th January, the Dollar Spot Index rallied by 1.70% to end the week at 97.270. In the week prior, the Index had risen by 0.49% to 95.636.

Out of the U.S

Early in the week, economic data took a back seat, in spite of weak private sector PMI and consumer sentiment figures.

On Wednesday, the FOMC rate statement and press conference was the main event. A more hawkish than anticipated FED Chair, who failed to downplay monthly rate hikes, spooked the markets.

In the 2^nd half of the week, economic data impressed, supporting the FED Chair’s view that the U.S economy could withstand a rising interest rate environment.

Initial jobless claims fell from 290k to 260k in the week ending 21^st January. GDP numbers, were also upbeat, with the economy expanding by 6.9% in the 4^th quarter. In the 3^rd quarter, the economy had expanded by 2.3%.

At the end of the week, inflation and personal spending figures were also key after Wednesday’s forward guidance.

In January, the Core PCE Price Index rose by 5.8% year-on-year, which was up from 5.7% in the month prior. Personal spending disappointed, however, falling by 0.6%. In November, personal spending had risen by 0.4%.

Out of the UK

It was a quieter week, with prelim private sector PMIs for January in Focus.

The numbers were skewed to the negative, raising questions over the BoE’s interest outlook. In January, the services PMI slipped from 53.6 to 53.3, with the manufacturing PMI declining from 57.9 to 56.9. As a result, the composite PMI slipped from 53.6 to 53.4.

Away from the economic calendar, UK politics also weighed.

In the week, the Pound fell by 1.12% to end the week at $1.3401. In the week prior, the Pound had risen by 0.64% to $1.3675.

The FTSE100 ended the week down by 0.37% following a 0.65% loss from the previous week.

Out of the Eurozone

Prelim private sector PMIs, German business and consumer sentiment, and member state GDP numbers drew attention.

It was a mixed set of numbers, particularly for the German economy.

German private sector activity bounced back in January, with the services sector returning to growth. Business and consumer sentiment also improved, albeit modestly.

According to prelim figures, however, the Eurozone’s Composite PMI fell from 53.1 to an 11-month low 52.4 versus a forecasted 52.6 in January. The decline came in spite of Germany’s manufacturing PMI rising from 57.4 to 60.5.

Germany’s GDP numbers for the 4^th quarter disappointed. Quarter-on-quarter, the German economy contracted by 0.7%. The French and Spanish economies fared better in the final quarter.

Ultimately, the EUR struggled with monetary policy divergence weighing heavily on the EUR in the week. The hawkish FED also sank the European boerses.

For the week, the EUR slid by 1.70% to $1.1151. In the week prior, the EUR had fallen by 0.59% to $1.13444.

The CAC40 fell by 1.45%, with the DAX and the EuroStoxx600 ending the week down by 1.83% and by 1.87% respectively.

For the Loonie

It was a quiet week on the economic calendar. A lack of stats left the Bank of Canada rate statement and press conference in focus.

A hawkish BoC supported the Loonie ahead of a particularly hawkish FED that left the Loonie in the deep red.

In the week ending 21^st January, the Loonie fell by 1.50% to C$1.2770 against the Greenback. In the week prior, the Loonie had fallen by 0.23% to C$1.2581.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar tumbled by 2.74% to $0.6988, with the Kiwi Dollar sliding 2.52% to end the week at $0.6548.

For the Aussie Dollar

Inflation and business confidence figures were in focus in the week.

In spite of a pickup in inflationary pressure, the Aussie Dollar struggled, with the RBA expected to stand pat near-term.

In the 4^th quarter, Australia’s annual rate of inflation accelerated from 3.0% to 3.5%. It wasn’t enough to move the dial, with business confidence sinking at the end of the year.

For the Kiwi Dollar

Inflation figures were also in focus and skewed to the positive for the Kiwi Dollar. The markets are not expecting the RBNZ to make a move, however, limited the impact of the numbers on the Kiwi.

In the 4^th quarter, the annual rate of inflation accelerated from 4.9% to 5.9%. Economists had forecast a pickup to 5.7%.

For the Japanese Yen

Prelim private sector PMIs and inflation figures for January failed to deliver support.

The all-important services PMI stumbled from 52.1 to 46.6, raising concerns over the economic outlook. Inflationary pressures also eased, with the annual rate of core inflation softening from 0.5% to 0.2%.

The Japanese Yen fell by 1.39% to ¥115.26 against the U.S Dollar. In the week prior, the Yen had risen by 0.45% to ¥113.680.

Out of China

There were no major stats for the markets to consider ahead of next week’s private sector PMI figures for January.

In the week ending 28^th January, the Chinese Yuan declined by 0.35% to CNY6.3612. In the week prior, the Yuan had ended the week up by 0.22% to CNY6.3387.

The Hang Seng Index ended the week down by 5.67%, with the CSI300 sliding by 4.51%.