Raphael Sonabend, FX Analyst
After a month of traders investing heavily in the greenback, higher-yielding currencies have stepped into the light and as the RBA cut their rates, the Loonie and Kiwi competed for strength. Whilst oil prices rose yesterday for a third consecutive day, analysts have been debating whether we have seen a low or if the current rise is a ‘dead cat bounce’. Either way, the Canadian dollar has been strengthening as a result and yesterday we saw month-highs in the CAD/AUD pair. The Kiwi saw a similar boost as strong dairy and employment data yesterday helped gains on the back of the RBA rate cut. Today will see commodity-currencies take a step back as UK services PMI and US ADP non-farm employment change and ISM non-manufacturing PMI data will govern trading. With UK data forecast to improve, we could see Sterling strengthen against counterparts, especially as services data is often seen as the most important of the three sectors. Scepticism surrounds ADP data predictions as the result tends to be far from forecasts, volatility could therefore be seen in USD pairings.
GBP/EUR: Currently trading at 1.3233
- Strong UK construction PMI figures yesterday saw a rise from 57.6 to 59.1, above the forecast 56.9. Whilst output and new business growth recovered from the 17-month low seen in December, business outlook was the second-lowest seen since October 2013. Previously, outlook has remained strong within the UK sectors however with global economic uncertainty growing and a UK general election looming, pessimism is once again starting to rear its head.
- After a month of selling-off euros, it appears that traders are now starting to buy back whilst the euro is weak and yesterday we saw the euro gain a cent on the pound. Hopes for a Sterling recovery will be pinned on UK services PMI data out this morning, forecast to rise from 55.8 to 56.6, the pound could remain steady if services outlook is perceived as optimistic.
GBP/USD: Currently trading at 1.5191
- Sterling gained throughout yesterday’s session as construction PMI saw an unexpected rebound from December’s 17-month low. Gains were supported by poor US factory orders data, which were released yesterday afternoon. Unsurprisingly orders fell below expectations however short-term outlook remained positive as analysts perceived a ‘smaller-than previously reported drop’ as a sign of a rebound in the near-future.
- High-impact data released throughout today’s session could inject some volatility into this pairing. UK services PMI, forecast to increase slightly, could bring Sterling strength in the morning before crossing the pond to mixed data from the US in the afternoon. ADP non-farm employment change is forecast to fall from 241K to 224K and ISM non-manufacturing PMI is predicted to rise from 56.2 to 56.6. ADP data frequently misses the mark and volatility is therefore often seen immediately after the actual result is released.
EUR/USD: Currently trading at 1.1467
- Strong Spanish unemployment change figures yesterday afternoon, coupled with a lack of US data, saw the euro climb just under two cent on the dollar. After several EUR/USD sell-offs in January, the euro may find an opportunity in a less-data-heavy February to regain some lost ground.
- Whilst no data of note is due out of the Eurozone, a meeting this morning between Syriza’s finance minister Varoufakis and ECB president Draghi, should keep traders on their toes, listening for any clues of how Syriza will spur a Greek economic recovery. US data this afternoon should add to volatility as ADP non-farm data is forecast to decline and ISM non-manufacturing PMI is predicted to increase.
GBP/AUD: Currently trading at 1.9401
- After the initial Sterling gains yesterday morning sent the rate crashing through the 1.96 barrier, we witnessed a slight correction before stabilising around 1.94 in the early hours of this morning. In anticipation of strong UK PMI services data, we have seen a slight rise in the rate in the last hour.
- Traders will have an eye on US non-manufacturing PMI data this afternoon followed by Australian retail sales later tonight. With both sets of data forecast to improve slightly on last month, this could provide some relief for the Aussie.
GBP/NZD: Currently trading at 2.0490
- After the RBA cut interest rates yesterday morning, other higher-yielding currencies came into the spotlight for investors. The Kiwi saw particular strength as strong data was released throughout yesterday. GDT price index data out of New Zealand saw a strong rise in whole milk powder of +19.2%, outweighing the -11.1% losses from Cheddar. The overall rise was 9.4%, well above the previous 1.0%. Employment data in the evening saw quarterly change rise to 1.2% from 0.9% but unemployment rate rose to 5.7% from 5.4%. As the labour force participation rate rose to 69.7%, a record high, traders focused on the positives side to these releases and the Kiwi continued to strengthen.
- Early this morning RBNZ governor Wheeler spoke on the outlook for the New Zealand economy. Key points from his speech were that housing is at a great ‘risk of a sharp correction’ and that the official cash rate could be cut in the future to help inflation and counter the effects of falling oil prices. UK services PMI today could help the pound to recover lost ground if data comes in line with (or beats) predictions.
GBP/CAD: Currently trading at 1.8855
- Expansion in the UK construction sector was much better than predicted, rising to 59.1 from 57.6 previously, this however failed to impact this pairing yesterday as rising oil prices strengthened the Loonie.
- Today brings UK service PMI data, with forecasts hinting at a possible rise, followed by this afternoon’s Canadian Ivey PMI data, which is forecast to fall from 55.4 to 53.8. Poor Canadian data forecast, combined with rising oil prices, could lead to a volatile day of trading.
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