Commentary by Moneycorp
Investors refused to be disheartened about the euro. It was steady against the US dollar and weakened by only three quarters of a cent against sterling. The euro went up by 5.7 per cent against the Swiss franc, but the move was a belated reaction to its huge fall a fortnight earlier and was probably helped along by Swiss National Bank.
The new Syriza government in Greece has not, as yet, actually done anything to upset the euro’s applecart. That does not mean investors are relaxed about the future of Greece within the single currency. In little over a month more than €20 billion has been withdrawn from Greek banks, causing liquidity problems and knocking a third off the bans’ stock market valuations.
With quantitative easing by the European Central Bank and uncertainty about the coherence of currency union, the euro now has two big issues to contend with. Look for continued weakness.
The dollar did not have such a great week. It lost half a Japanese yen and fell by nearly a cent against sterling. It did manage to keep pace with the euro, but that hardly rates as a towering achievement.
The main factor behind the dollar’s relatively difficult week was a feeling that the Federal Reserve might be reluctant to take interest rates higher as long as other major central banks are leaning in the other direction and inflation remains well below target. That suspicion was fed by weaker-than-expected US economic data early in the week, including a surprisingly sharp drop in durable goods orders.
The three ‘commodity’ dollars – the Aussie, the Kiwi and the Loonie itself – all had a rough week. It was caused by soft commodity prices and a sensation that it could be a while until interest rates in those countries move higher. In the case of the Canadian dollar it meant a loss of one and a half US cents and a four-and-a-half-cent fall against sterling.
There were not a whole lot of Canadian economic statistics and they all came out at the same time last Friday. The unexpected 0.4 per cent monthly increase in retail sales was well received but a below-forecast inflation number showed consumer prices falling by -0.7 per cent in the year to December.
The three ‘commodity’ dollars – the Aussie, the Kiwi and the Loonie – all had a rough week. It was caused by soft commodity prices and a sensation it could be a while until interest rates in those countries move higher. In the case of the Australian dollar it meant a loss of two US cents and a six-cent fall against sterling.
On the brief list of Australian economic statistics, business confidence improved fractionally but remained close to zero. Import prices were up by 0.9 per cent in the fourth quarter while export prices remained flat. Private sector credit (bank lending) continued to grow at a decent annual pace of 5.9 per cent.
Soft commodity prices and a sensation that it could be a while until interest rates in those countries move higher caused the NZ dollar a loss of two US cents and nearly a seven-cent fall against sterling.
The Reserve Bank of New Zealand began to tighten monetary policy by raising its Official Cash Rate from 2.5 per cent to 2.75 per cent last March. By July the OCR was up to 3.5 per cent and in subsequent months the RBNZ continued to indicate that the next move was likely to be another increase.