The Dollar appreciated 0.3% last week, despite data suggesting that US growth may have slowed further in Q4. The volume of retail sales contracted 0.1% mom in October and the New York Fed Empire State manufacturing index fell to 2.9 in November from 4.0 in October even if it remained in the remarkably narrow 2.0-4.8 range in place since July. Activity in the US manufacturing sector remains on the soft side, despite President Trump’s attempt to reinvigorate the sector. Ultimately, markets waiting for further developments in the US-China trade war and specifically whether the US will agree to cancel its tariffs on $156bn of Chinese imports due to take effect on 15th December.
The Euro was up 0.2% in trade-weighted terms but remains within the remarkably narrow 0.2% range in place for the past fortnight. The Swiss Franc made steady gains throughout the week but depreciated 0.4% on Friday to end the week up 0.5%. Sterling appreciated 0.8% despite the release of weaker-than-expected GDP growth of 0.3% qoq in Q3 and another soft set of retail sales data, with political developments still setting the tempo for the currency ahead of the 12th December general elections. The volume of retail sales contracted 0.1% mom in October and was down 0.5% in the three months to October.
The Australian and Kiwi Dollar had contrasting fortunes. The Australian Dollar fell to a 6-week low on Thursday following the release of disappointing labour market data. Total employment fell by 19,000 in October, the first monthly fall since July 2018. With the RBA having put a lot of emphasis on the health of the labour market, this latest set of figures has re-ignited market concerns that the RBA will have to cut its policy rate further in coming months.
Conversely, the Kiwi Dollar rallied nearly 1% last week to a 3-week high in trade-weighted terms after the RBNZ surprised markets on Wednesday by keeping its policy rate unchanged at 1.00%. Analysts had forecast a 25bp rate cut and markets had priced in a 65% probability of a cut, with a view that the RBNZ – which has a history of surprising markets – would deliver one last “insurance” cut in this easing cycle. The RBNZ said monetary policy was currently very stimulative but that it could cut rates further if necessary.
