The Australian and Kiwi Dollars remained under pressure last week but price action in the Dollar, Euro, Sterling and Swiss Franc was modest, despite plenty of central bank action, and overshadowed by the surge in the crude oil price on Monday. Brent crude shot up by $12/barrel to over $69 – the largest ever one-day percentage rise – following drone attacks on two Saudi oil installations last weekend but has since settled around $65/barrel.
The Dollar trade-weighted index rose a meagre 0.3% last week, with Dollar volatility at its lowest since early July. The Philly Fed and NY Fed manufacturing indices moved in opposite direction in September, therefore providing conflicting information as to how US GDP fared in Q3. The consensus forecast is that it was broadly unchanged from 2% qoq annualised growth in Q2. In any case the highlight of the week was the Fed’s policy meeting, which delivered a “hawkish cut”. While it cut rates 25bp, as expected, two FOMC voters dissented in favour of unchanged rates while the 17 FOMC members are equally divided as to whether the Fed should cut, hike or leave rates unchanged for the remainder of the year.
Sterling managed to appreciate 0.4% last week, to its strongest level since end-May, despite much weaker than expected core CPI-inflation of 1.5% yoy in August and a dovish twist by the Bank of England. The main catalyst for Sterling’s rise was seemingly a growing sense that Prime Minister Johnson and the EU have softened their stances on a Brexit deal and may still be able to reach in coming weeks an acceptable compromise on the thorny issue of the Irish backstop.
The Euro trade weighted index ended the week broadly in the middle of a two month range only 2%-wide with markets still pondering the implications of the ECB’s recent policy easing measures.
The Australian and Kiwi Dollars both dropped about 1.2-1.3% last week. The Kiwi Dollar hit a four-year low despite GDP growth in Q2 of 0.5% qoq beating expectations of +0.4% qoq. The currency is down about 5.5% in the past two months, with markets focussed on the risk of the RBNZ cutting its policy rate again, as early as next week. The Australian Dollar hit a 3-week low following the release of labour data showing a fall in full-time jobs and a rise in the unemployment rate.
