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Foreign Exchange Forecast: Pound (GBP) Fluctuating, AUD, NZD and ZAR all Gain From Chinese Data

Pound (GBP) Exchange Rate Fluctuates as UK Data Disappoints

Tuesday saw the Pound (GBP) trading higher against a basket of other majors ahead of Thursday’s speech from Bank of England (BoE) Governor Mark Carney. If Carney is optimistic and speaks positively on the prospect of interest rate hikes in the UK, the Pound may rally against its peers. The BoE, however, has come under scrutiny this week as it has failed to release expense reports detailing costs the Governor has racked up. Despite being under no legal obligation to do so, the bank wanted to publish frequent reports to allow a degree of transparency to the inner bank workings—a promise given by Carney when he was appointed last July. The bank stated: ‘The bank is taking concerted steps not only to bring current reporting up to date, but to put in place a more timely and frequent reporting framework on a forward basis. Transparency and accountability is of paramount importance to the bank, and these steps will ensure that we are at the forefront of best practices in this area. Domestic data on Tuesday showed UK loans for mortgages reached a yearly low of 41,588 in August.  Although UK data is lacking today, the Pound exchange rate could fluctuate in response to global developments.

Euro (EUR) Trending Higher despite Patchy PMI

The Euro (EUR) advanced modestly against rivals like the Pound and US Dollar on Tuesday despite disappointing Eurozone data releases. Figures showed the Eurozone’s Manufacturing and Services sectors expanded at a slower than forecast rate in September despite the European Central Bank’s (ECB) desperate attempts to kick-start the region’s recovery. Markit’s Composite Eurozone Purchasing Managers’ Index dipped to 52.3—a nine month low. Markit economist Chris Williamson commented: ‘The ECB will be disappointed. It’s got a big uphill battle on its hands and perhaps what the survey is saying is what they have done to date is not going to be enough.’ Wednesday will see the release of German IFO Business Climate, Current Assessment and Expectations figures which could help to bolster the Single Currency.

US Dollar (USD) Softer as it Pauses in its Rally

The US Dollar (USD) recorded losses on Tuesday as it took a pause in its recent rally. Furthermore, the US Markit Manufacturing Purchasing Manager Index came in a little below forecast in September at 57.9, just shy of the 58.0 expected. Interest rate hike speculation is driving US Dollar movement at the moment, with several Federal Reserve Presidents stating their desire to increase borrowing costs in the near future. Dallas Fed President Richard Fischer stated: ‘I personally would want to see, the date of our first move, I personally expect it to occur in the spring and not in the summer as it seems the markets are discounting.’ Wednesday will see the release of US Mortgage Applications as well as New Home Sales figures which could encourage US Dollar movement.

Canadian Dollar (CAD) Could Fall on Retail Sales Data

The Canadian Dollar (CAD) traded relatively sideways against the US Dollar (USD)  on Tuesday following the release of disappointing Canadian Retail Sales data. Whilst sales were forecast to grow in July by 0.5% on a month-on-month basis, the actual figure showed a contraction of 0.1%—the first drop in seven months. Economist Jimmy Jean stated: ‘Obviously it’s a disappointment.’ Jean continued to suggest that Tuesday’s soft numbers ‘means that we had a pretty strong second quarter and now we’re heading into the third quarter on a flat footing.’ With no further Canadian data publications scheduled for the rest of the week, the ‘Loonie’ will be reliant on global developments for any movement.

Australian Dollar (AUD) Rallies with China Support

The Australian Dollar rallied on Tuesday off the back of positive Chinese manufacturing data. As Australia’s largest trading partner, any slow-down in the Chinese economy has a knock-on effect for the ‘Aussie’ so this positive report was well received. Despite the Australian commodity currency gaining against other majors, it was unable to extend above the 90 US cents threshold that it sank below last week. Strategist Martin Schwerdtfger stated: ‘Australia is one of the countries among all commodities exporters that has the highest exposure to China, in terms of exports and the general trade linkages between the two countries.’ The ‘Aussie’ may see fluctuations from the release of the Australian Conference Board Leading Index and Skilled Vacancies figures released on Wednesday.

New Zealand Dollar (NZD) Trading Tentatively Ahead of Fronterra Result

The New Zealand Dollar (NZD) made gains at the beginning of the week following the weekend’s general election. However, Wednesday will see dairy giant Fronterra’s annual result which may discuss the final payouts for milk farmers in 2013/14. Westpac Banking representative Imre Spiezer commented: ‘If they (Fronterra) comment on the forecast right now, you’d be betting they would be dropping it.’ The fall in dairy prices by Fronterra has caused major softening for the ‘Kiwi’ in recent months as dairy produce is New Zealand’s largest export.

South African Rand (ZAR) Exchange Rate Higher

The South African Rand (ZAR) was trending higher on Tuesday thanks to  China’s positive manufacturing figures. The nation’s Manufacturing Purchasing Managers’ Index rose to 50.5 in September, higher than the 50.0 reading forecast. Other commodity based currencies such as the Australian Dollar (AUD) and New Zealand Dollar were also supported by China’s good news which helped temper concerns regarding slowing Chinese growth. Thursday will be an influential day for the Rand with the release of the South African Producer Price Index. The data could bolster the South African currency against other peers if figures are favourable.

Japanese Yen (JPY) Strengthens amid Geopolitical Tensions

The Japanese Yen (JPY) continued to strengthen against the US Dollar (USD) on Tuesday following US airstrikes in Syria conducted. Investors are seeking safer assets such as the Yen in a risk-aversion tactic following a Syrian fighter jet being shot down. Industry expert Sireen Harajli commented: ‘The Yen is just a reaction to the risk-off sentiment. Syria is back in the spotlight, so it’s a lot of geopolitical risk that’s having its influence on the markets.’ With a lack of influential data released on Wednesday, Thursday will prove more significant with the release of the Japanese National Consumer Price Index.