CAD was the best performing currency on Friday; GBP was the second best performing currency; NZD was one of the worst performing currencies; USD was a bit stronger against most currencies

By Nick Smyth

The USD was a bit stronger against most currencies on Friday.  The EUR ended the week a little below 1.23, down almost 2.5 cents from its intraday peak the Friday before.  We receive the advance estimate of core CPI for February on Wednesday evening while ECB President Draghi addresses the European parliament tonight. 

The CAD was the best performing currency on Friday after Canadian CPI – both headline and core – surprised on the upside.  The Bank of Canada’s three preferred measures of core inflation are all now close to the 2% target.  The market prices a 65% chance that the BoC will hike rates at its April meeting, which would make it the central bank’s fourth rate rise this cycle. 

The GBP was the second best performing currency on Friday, although it’s hard to pinpoint exactly why.  Media report that Theresa May’s divided cabinet had settled on an approach of ‘managed divergence’ whereby the UK would keep regulatory alignment with the EU in some areas but have the scope to diverge in others.  European Council President Donald Tusk though quickly rubbished the reported UK stance as “pure illusion”.  More detail on the government’s planned approach should be revealed on Friday when May gives a long awaited speech on Brexit.  Ahead of that, Labour leader Jeremy Corbyn will set our his party’s planned approach to Brexit tonight, which will indicate their intention to remain within the customs union (by way of a new treaty).  Separately, new BoE MPC member Ramsden wrote in the Sunday Times that “relative to where I was, I see the case for rates rising somewhat sooner rather than somewhat later.” 

The NZD was one of the worst performing currencies on Friday.  The NZD reached a high of around 0.7345 after the stronger than expected retail sales released on Friday morning, but it fell to as low as 0.7271 during New York trading, before closing a little below 0.73.  The NZDAUD retreated further from its 6 month highs reached on Thursday and finished the week a little above 0.93.  We expect NZD/AUD to be largely range-bound this year.

This week, we receive the trade balance on Tuesday and migration data on Wednesday.  The highlight is likely to be the ANZ Business Survey on Friday.  Across the Tasman, the key release is the ABS Capital Expenditure data on Thursday. 

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