USD: Investors may start to take their profits on the strong dollar
Despite an upward revision in Q3 GDP growth and November’s solid job report, the dollar ended last week lower — perhaps as investors began to cash in their gains on the high-value currency. Even with the small selloff, the greenback is still trading near its 14-year-highs against other major currencies thanks to the relatively-strong US labor market and as investors still believe a Federal Reserve interest rate hike is still likely in mid-December.
This week we’re seeing similar behavior, with investors taking their profits on the strong dollar even with the release of Monday’s stronger-than-expected US business activity reports. We’ll see if this continues in this moderately light data week, which starts with October’s trade balance, Q3 productivity, and factory orders growth results out on Tuesday morning. On Wednesday, look for the weekly mortgage applications and JOLTS jobs openings to come out in the morning followed by October’s consumer credit numbers in the early afternoon. Thursday morning brings the usual weekly jobless claims reports, while Friday morning ends the week with the Michigan consumer survey and October’s wholesale inventory results.
EUR: Steady currency awaits possibly uneventful ECB meeting on Thursday
The euro recovered from 20-month-lows against a weakening US dollar last week as Eurozone manufacturing activity, inflation, and retail sales results broadly came in line with analysts’ expectations for the region, signaling continued resiliency.
The shared currency continues its upward momentum into this week on stronger-than-expected Eurozone business activity, even as Italy’s referendum vote on reducing the power of the Senate was easily defeated over the weekend. Tuesday will bring Germany’s factory order results for October in the morning, followed by the Eurozone’s Q3 GDP results out in the afternoon. We’ll see Germany’s latest industrial production readings and Italy’s trade balance data out early Wednesday morning. Thursday morning will showcase Italy’s Q3 jobs data and industrial output, as well as the widely-anticipated European Central Bank meeting, where the ECB is expected to hold interest rates and stimulus levels steady as the Eurozone keeps its economic resilience. Friday morning finishes out the data week for the region with Germany’s latest trade data and Greece’s industrial production and consumer inflation readings.
GBP: May be driven by this week’s Brexit-related Supreme Court headlines
The pound enjoyed one of its strongest weeks since June’s referendum vote after Brexit Secretary David Davis said that the UK would consider making contributions to the EU to secure access to the single market, which alleviated some of the economic trade concerns around Brexit. Pound investors were also buoyed by the highest UK mortgage approval volumes since March, which came on top of stronger-than-expected construction and manufacturing sector reports.
Sterling enters this week with momentum after November’s strong UK service sector growth, but may face volatility from news headlines as the Supreme Court hears an appeal case related to whether or not Parliament should have a vote on Brexit. Besides the televised hearings, we can expect housing price, manufacturing, and industrial production numbers out on Wednesday morning. From there it’s a dry spell until the latest consumer inflation estimates and trade balance data come out on Friday morning.
CAD and AUD: Commodity currencies may be driven by oil, coal, and iron ore prices
The Canadian dollar surged to six-week highs against the US dollar last week largely thanks to rallying oil prices spurred by the first OPEC production cut since 2008. The loonie also received a boost from stronger-than-expected job growth and rising raw and industrial good prices. This week starts with Tuesday morning’s latest trade data and a business confidence survey, followed by the Bank of Canada’s meeting on Wednesday morning, where the central bank is expected to keep interest rates steady. Thursday morning’s housing starts, building permits, and new housing price data will be the last of the significant data out for the week.
The Australian dollar ended its rocky week lower as iron ore prices swung wildly with China’s new commodity trading regulations (China is Australia’s largest trading partner). The currency enters this week at June lows as investors await Monday night’s Reserve Bank of Australia interest rate decision, where the RBA is expected to hold interest rates steady. Tuesday evening brings construction sector activity and Q3 GDP results, while Wednesday night will showcase Australia and China’s latest trade balance data. The week’s significant data ends Thursday night, with Australia’s latest home lending growth results and China’s latest consumer and producer inflation readings. In between data releases, price swings in iron ore and coal may be the main driver of the Aussie dollar this week – as they were last week.