World First – Monthly Currency Update: January

AUD: Testing times for the Aussie

Month in review – January saw the Australian dollar fall to fresh five and a half year lows against the AUD. Bringing about these lows, and a break of 0.8000 AUDUSD with it, was Canada’s Central Bank slashing its interest rates and an anti-austerity party winning the Greek election. The big influence of the two was the former. Like Australia, Canada is a commodity based currency, and indeed the more than 16% fall we have seen since September 5th 2014 was heavily influenced by a global weakening in commodities – notably oil. The Bank of Canada cut its interest rates from an already low 1% to 0.75%. This cut saw a sharp drop in the AUD and led to further speculation that Australia will follow suit next week by dropping our own interest rates.

The Key Trends – Across the Pacific, strength in the USD saw the AUD fall lower. A combination of positive market news (non-farm payrolls) and a weakening EUR has seen the USD climb to historic heights against the EUR. A predicted rise in US interest rates in June will most likely see the AUD continue to fall.

What’s Next? It will be a busy first week of February where the AUD will pay close attention to the RBA’s rate decision and statement on Tuesday the 3rd and then again to the Employment Change data on Friday the 6th. Negative unemployment news will also impact on the markets where recently we came of a 12 year high of 6.3% to fall to 6.1%. RBA Governor Stevens has noted previously that he believed the AUD was overvalued and he would like a fall to at least 75c – and his words next week will undoubtedly give the AUD some clearer direction.

USD: US Dollar continues its reign

Month in review – After coming in as 2014’s best performing currency, the USD lost momentum early in January. With key employment & retail sales figures coming in below expectations, the likelihood of the US raising interest rates in January significantly dropped. This was reinforced by the FOMC meeting minute release, which indicated unless near term employment & inflation data displays significant growth, that rates will remain unchanged for a ‘considerable time’.

The Key Trends – With key US data coming in weaker than expected early in January, we saw the AUD fight back to hit 83 cents. However, with strong US housing data & firm FOMC meeting minutes later in the month, the USD:AUD has seen fresh new highs in January hitting 0.7881.

What’s Next? If key releases (i.e. employment & inflation) are higher than forecast in February, speculation as to an early interest rate rise for the US will spark up once again.

GBP: The Pound suffers through a bleak January

Month in review – Overall the Pound endured a horrible January, losing over 500 points to the USD and dropping as low as 1.4949. Key data early in the month all missed expectations (Construction PMI, Services PMI & CPI) with the Bank of England also voting unanimously to hold interest rates, which many see as reflective of the low inflation environment in the UK. 

The Key Trends – GBP/EUR proved to be the month’s big winner, jumping from a low of 1.2695 to 1.3498 (5.9% up). This fresh 7 year high was not too much of a surprise given the European Central Bank’s decision to initiate an asset buying programme of EUR60bn per month. On the other hand, GBP/AUD took a significant U-turn, falling to 1.8333 mid-month before climbing back up to 1.9195.

What’s Next? If inflation levels continue to falter in the UK, an interest rate hike will not come as soon as everyone first thought and all eyes will be on key data in order to determine if an economic slowdown in the UK has begun.

EUR: Single currency in turmoil

Month in review – The EUR has endured the worst month of performance since its inception in 1999, falling 8.7% against the USD throughout January due to some extremely important milestones. ECB President Draghi released Quantitative Easing measures (€60Billion/month in private & public sector debt/assets from March 2015- September 2016) and the so called ‘Grexit’ (Greece’s mooted exit from the Eurozone) only added further complexity to a struggling currency.

The Key Trends – AUD/EUR enjoyed a 6% rise throughout January on the back of EUR pressure, which grossly outweighed its AUD counterpart. Technically the next level of resistance lies at 0.7150 and support lines come in at around 0.6920. In the EUR/USD, 1.10 is still the major level in the markets crosshairs.

What’s Next? – Long term, the EUR has a rough road ahead with some calls for parity (1 to 1) against the USD by the end of the year. The ‘game of chicken’ being played between the ECB and the newly elected Syriza Party in Greece is set to play out over the next few weeks, though in the short-term Greece has a lot more to lose than to gain.

NZD: Kiwi at 3 year lows

Month in review – The New Zealand Dollar plummeted throughout January, commencing on highs of 0.7890 NZD/USD before hitting fresh lows of 0.7397, which we haven’t seen since late 2011. Exporters have welcomed the weakening NZD, which has tumbled to its lowest point in more than three years as investors favoured the USD, whilst keeping a close watch on interest rate movements.

The Key Trends – Inflation fell below 1%, which sent expectations that the RBNZ may in turn keep rates on hold or even cut rates. Financial markets started to price in the potential for a rate cut, which pushed the NZD below 0.74 USD.

What’s Next? Exporters to the U.S will reap the benefits of a falling Kiwi Dollar, however it remains strong against other currencies such as the AUD and EUR due to falling commodity prices in Australia and the stimulus program in Europe. Exporters to these markets will remain highly priced.

Latest indicative exchange rates at time of writing*:

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