Weekly Global Currency Outlook – From Our Bankers


  • EUR/USD eased on Friday following a media report that European Central Bank (ECB) policy makers might not be ready to outline their plans for QE tapering until December. This week’s key theme is the ECB’s policy meeting. Investors expect ECB President Mario Draghi will outline QE tapering plans at this week’s ECB meeting (7 September). The ECB are keen to avoid a ‘taper tantrum’; consequently we believe the ECB will not wait until December to outline their plans for QE tapering.
  • August Eurozone manufacturing PMI data printed at a record high of 57.4 on Friday and we anticipate the August Eurozone composite PMI’s released this week will show Eurozone economic growth is accelerating. We believe there are upside risks to the ECB’s GDP forecasts which will be released on Thursday. Over the medium term EUR/USD will lift reflecting the Eurozone’s large current account surplus (3.5% of GDP), increasing portfolio inflows and ECB monetary policy normalisation. This implies medium‑term gains in AUD/EUR will be limited.
  • USD briefly dipped on Friday because the U.S. non‑farm payrolls were weaker than expected at 156,000 (consensus: 180,000) and wage growth remained stable at only 2.5%pa (consensus: 2.6%pa). We expect the USD will remain heavy because of a stronger EUR and the absence of key U.S. data this week. The re‑emergence of tensions on the Korean peninsula on the weekend is another factor weighing on the USD in the early part of the week.
  • AUD/USD dipped early Monday morning because North Korea reportedly conducted a nuclear test on the weekend. AUD tends to decline on such risk aversion because Australia runs current account deficit, and hence is reliant on offshore financing. Generous liquidity in AUD also encourages participants to express risk aversion via AUD. AUD/USD faces a number of key quarterly data releases such as Q2 GDP on Wednesday and the RBA’s policy decision on Tuesday. The improvements in the local economic data is broadening, pointing to a risk the RBA is more optimistic in its monthly post‑meeting statement on Tuesday. Combined with a heavy USD, we consider AUD can convincingly break above 0.8000 this week, though tensions on the Korean peninsula will weigh on AUD early in the week.
  • NZD/USD was very weak last month, dropping by 5% as New Zealand’s two‑year swap rates moved lower over July following Assistant Governor John McDermott’s lower neutral interest rate speech, and failed to recover in August. The upcoming New Zealand general election may have also dampened NZD a little last week. But we expect NZD to consolidate this week, helped by a projected increase in whole milk powder prices of 2‑4% and a heavy USD. AUD/NZD can creep higher to 1.1200 this week.
  • USD/CAD risks continuing to decline this week. Given the very strong growth in Canada’s economy in the first half of 2017 averaging 4.1%, the risks are tilted to the Bank of Canada surprising with a rate hike on Wednesday (57% priced). We also expect strong Canadian jobs growth to continue on Friday. AUD/CAD can below to 0.9800 for the first time since mid‑July this week.
  • USD/JPY and AUD/JPY slumped by 100pts this morning because of weekend reports the North Korean government conducted a nuclear test. JPY strengthens following such risk averse events because Japan runs a large current account surplus (3.8% of GDP) and so there are no international funding requirements. USD/JPY will also be weighed down by low U.S. Treasury yields. With little scheduled on either the U.S. or Japanese economic agenda this. But once the North Korean tension fades, AUD/JPY can edge higher, encouraged by firmer commodity prices, generated by firmer synchronised global economic growth. AUD/JPY appears set to lift to 88.00 in the near‑term and eventually test the July high of 89.42.
  • GBP/USD spiked and AUD/GBP dipped on Friday because the August U.K. manufacturing PMI printed above expectations at 56.9 pts (illustrating robust U.K. manufacturing activity). The main focus today will be the August U.K. construction PMI (6.30pm Sydney). Expectations are for a print of 52pts. We believe the slowdown in the U.K. housing market will inevitably lead to a slowing of construction activity, so a positively surprising U.K. construction PMI print will have a limited effect on GBP/USD.
  • We believe GBP will continue to trade with a heavy bias reflecting slowing U.K. economic growth, lower inflation and Brexit related uncertainties. GBP/USD will consolidate this week. The August U.K. composite PMI will print below July level at around 54pts, with services and manufacturing making up for declines in construction. The EU‑UK BREXIT talks made progress last week, particularly on the Irish border. We anticipate the talks will continue until December, meaning headline downside risks for GBP remains elevated. AUD/GBP is expected to remain firm over coming quarters.
  • USD/CNH will be weighed down by the acute onshore liquidity squeeze. Further escalation of tensions on Korean Peninsula following North Korea’s nuclear test over the weekend is also expected to keep the pair heavy towards 6.50 as authorities prioritise stability, although official support is possible as market expectations have turned increasingly one‑sided towards a lower USD/CNH.



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