Central Banks Dominate As USD Continues To Slide Lower
Last week, the Bank of Canada once again raised its benchmark interest rate, with the BOC stating it sees the economy’s powerful performance pointing to broader, more self-sustaining growth. The central bank hiked rates by one-quarter point to 1%, its second 0.25-basis-point increase in as many months.
After the Bank of Canada raised rates, the policy statement was notably hawkish, stating that solid Canadian employment and wage growth led to strong consumer spending, while the key areas of business investment and exports also improved.
The Bank of Canada (BOC) also said “Recent economic data has been stronger than expected, supporting the bank’s view that growth in Canada is becoming more broad-based and self-sustaining”.
It also pledged to pay particular attention to the economy’s potential, job-market conditions and any potential risks for Canadians from the higher costs associated with borrowing.
The market reaction saw the Canadian dollar move sharply higher against a basket of top-tier currencies, with the USDCAD pair crashing to 1.2133, after previously trading above the 1.2400 handle.
The European Central Bank (ECB) left its benchmark interest rate unchanged at record lows, with President Mario Draghi noting the governing council would make a decision in the autumn about future policy changes.
The ECB also raised its forecast for GDP growth this year from 1.9% to 2.2%, which would be the fastest growth rate since the 2007. However, the policy statement said, despite the pick-up in growth, in the Eurozone remains slower than the ECB’s target of 2%.
The EURUSD pair reacted positively to Mario Draghi’s comments, and yet again moved above the 1.2 level. The EURUSD later moved to a new 2017 trading high, moving closer to the 1.2100 level, as the US dollar index tumbled to multi-year lows.
The Reserve Bank of Australia (RBA) kept the official cash rate at an historic low of 1.5%, which was widely anticipated by economists and investors.
The main highlight came from the RBA policy statement, with policy makers mentioning the value of the Australian dollar was too high, and weighed on economic growth, creating low inflation and employment in the domestic economy.
Immediately after the RBA policy statement was released, the AUDUSD dipped lower towards its 200-week moving average. However, the AUDUSD pair would later recover above the $0.8 cents level, and move to a new 2017 trading high, hitting $0.8125 cents.
Switzerland’s economy grew at a slower pace than expected in the three months to June, as growth provided by the financial sector and Swiss hotels was offset by slower growth in trade and public administration. Gross Domestic Product (GDP) increased 0.3% quarter on quarter, in the three months to June, according to the State Secretariat for Economic Affairs, coming in below analyst forecasts of 0.5% growth.
The British pound moved above the $1.3100 level against the US dollar, for the first time in over 4 weeks. Broad based US dollar weakness, and renewed optimism for Brexit deal between the UK and EU underpinned British pound strength.
Earlier in the week, the United Kingdom had posted weaker than expected economic data for the month of August. With UK PMI construction falling to 51.1, making it the weakest construction PMI in over twelve months. The UK services PMI also fell to an 11-month low, printing 53.2, marginally weaker than the previous month’s 53.8 reading.
This week we see more Central bank action, with the Bank of England and the Swiss National Bank delivering interest rate decisions. Attention will again turn to their policy statements, with the United Kingdom facing inflationary pressures, while the Swiss economy faces headwinds from an appreciating Swiss franc.
We also see inflation data from the United States economy, with the release of key PPI and CPI data. The Australian economy releases employment change figures, and the Chinese economy will also give us Industrial production numbers for the month of August.
References:
https://www.ft.com/content/d85a2eda-9216-11e7-bdfa-eda243196c2c
https://www.ft.com/content/65ee8ece-45be-3a01-9301-c6a6e7fe77a0
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