Weekly Currency Update

EUR weekly currency update

In an unusually quiet week the biggest half-dozen currencies moved by less than 1% against each another. The euro had the best outcome, strengthening by nearly half a cent against the pound.

Again it was optimism about Greece that supported the euro. An increasing realism in Brussels and Berlin suggested an acceptance that Greece can only be kept afloat if its EU creditors are prepared to forgive some of its debts. Until now no EU leader has used the expression “take a loss” in the context of help for Athens but there is the impression that it will only be a matter of time. They want to keep Greece in the single currency and they will not achieve it by drowning the country in debt.

The optimism could keep the euro supported into the end of the year. Less certain is what would happen to it if Portugal and Ireland were to demand equally generous terms.

USD weekly currency update

In an unusually quiet week the biggest half-dozen currencies moved by less than 1% against each another. Sterling covered a range of one cent against the dollar, strengthening by a net 16 ticks. In practical terms that qualifies as “no change”.

The hot topic for the dollar remains the “fiscal cliff” that will put a $600bn dent in the economy next year if the Democrats and Republicans fail to reach a budget agreement before January. Investors are blowing hot and cold. One moment they cannot comprehend either side being so ideologically obdurate that they would push the US economy back into recession by refusing to compromise; the next moment they can imagine them doing exactly that.

On balance though, investors are inclined to take the optimistic view. Interestingly, either outcome could be positive for the dollar in the short term; a deal would assure continued – even accelerated – US Economic growth while no deal would send investors scurrying for the safety of the dollar.

CAD weekly currency update

In an unusually quiet week the biggest half-dozen currencies moved by less than 1% against one another. Sterling covered a range of one cent against the Loonie, strengthening by a net 26 ticks. In practical terms that qualifies as “no change”.

The Canadian dollar stuck close to the Greenback, varying by no more than half a cent. Investors fancied that the success or failure of congress to reach a budget compromise to avoid the US “fiscal cliff” was more important than the occasional economic statistic. If the American economy takes a $600bn hit next year as a result of falling off the cliff, the Canadian economy will also suffer. As optimism about a compromise deal blew hot and cold, the US and Canadian dollars both wavered together.

Third quarter gross domestic product provided the week’s only important Canadian data. It grew by 1.0%, less than the 1.2% expansion in the previous quarter and short of the forecast 1.2%.

AUD weekly currency update

In an unusually quiet week the biggest half-dozen currencies moved by less than 1% against one another. Sterling covered a range of one and a half cents against the Aussie, strengthening by three quarters of a cent. A net change of that order is not quite small enough to be regarded as “no change” but it is the sort of move that would normally be seen in a day, not a week.

The Australian economic data made up a mixed bag, none of them particularly significant but none particularly impressive either. October’s 3.4% increase in new home sales didn’t quite counteract September’s -3.7% fall. Private sector lending grew by an almost invisible 0.1% the same month, dragging annual credit growth down to 3.8%. The AiG’s performance of manufacturing index for October slipped further into the contraction zone at 43.6. It has been below the boom/bust dividing line at 50 since April.

NZD weekly currency update

In an unusually quiet week the biggest half-dozen currencies moved by less than 1% against one another. Sterling covered a range of two and a half cents against the Kiwi, strengthening by one and a quarter cents. The NZ Dollar was the week’s tail-end Charlie but the Aussie was not far ahead of it.

It was a game of two halves for the New Zealand economic data. Tuesday’s opening shot was the trade figures for October. They were good, in that the -$0.72bn deficit was smaller than September’s, but bad because investors had been expecting a 25% smaller gap. In essence, imports were on target but exports fell short of forecast. Thursday’s building permits figure was a disappointment too, falling by -1.5% on the month.

But the day’s other data for business confidence and the business outlook exceeded expectations. A net 26.4% of firms expected business conditions to improve over the year ahead, up from 17.2% in the previous survey, and a net 31.6% expected more activity over the coming year, an increase of six percentage points on the month.

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