EUR/USD dropped to 1.09 pre-FOMC despite stronger than expected investor confidence. The recent slide in the euro and easing by the ECB has and will continue to make European investors more confident about the outlook for the Eurozone economy. 2016 is a year of big risks for Europe with the potential of a deepening refugee crisis, slower growth and increased terrorism. Eurozone PMIs are scheduled for release tomorrow and we are looking for stronger numbers overall.
Sterling also traded lower against the U.S. dollar despite better than expected CPI. Prices were expected to fall in November but instead they stagnated. However like the U.S., annualized CPI growth of 0.1% is hardly impressive. UK employment numbers are scheduled for release tomorrow and the focus will be on wages. Average weekly earnings growth is expected to slow but if they surprise to the upside, it could help GBP/USD hold 1.50.
The New Zealand dollar was the best performing currency. An uptick in dairy prices and stronger than expected current account numbers contributed to its outperformance. Dairy prices rose for the second auction in a row. The RBNZ cut interest rates last week but shifted to a neutral bias, which we believe will help encourage further gains in NZD/USD if the Fed issues a dovish guidance.
The Australian dollar ended the day sharply lower despite relatively optimistic RBA minutes. According to the central bank, domestic data had been generally positive and output growth should strengthen gradually over the next 2 years. The CPI outlook still affords scope for further easing but based upon recent data, there’s no reason for the central bank to cut rates in the near future. The weakness of AUD may have more to do with the drop in copper and iron ore prices.
USD/CAD ended the day unchanged despite a rebound in oil prices. Weaker manufacturing sales were offset by upbeat comments from Bank of Canada Governor Poloz.