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U.S – China Trade Talks, the BoC and Brexit Chatter in Focus

Bob Mason
GDP numbers out of Australia added to the doom and gloom early on. The Bank of Canada could sink the Loonie later today. Stats support a more dovish outlook.

Earlier in the Day:

Economic data released through the Asian session this morning was limited to November building approval figures out of Australia. Outside the numbers, U.S President Trump delivered an Oval Office speech on immigration and the extended government shutdown that has shown few signs of coming to an end, President Trump digging his heels in over the funding of a border wall with Mexico.

For the Aussie Dollar, building approvals tumbled by 9.1% in November, which was significantly worse than a forecasted 0.5% decline and October’s 1.5% fall.

According to figures released by the ABS:

  • Building approvals were down 18.3% from the same time last year.
  • The November slide was attributed to a fall in approvals for private sector dwellings excluding houses, which fell by 17.9%.
  • Private sector houses also fell, down 2.6% for the month.

The Aussie Dollar moved from $0.71657 to $0.71526 upon release of the figures before rising to $0.7157 at the time of writing, the Aussie Dollar up 0.24% through the session supported by optimism over U.S – China trade talks and improving risk appetite through the week.

Elsewhere, the Japanese Yen was down 0.15% to ¥108.91 against the U.S Dollar, with the Kiwi Dollar up 0.43% to $0.6752, risk appetite driving the markets with economic data on the lighter side through the early part of the day.

In the equity markets, it was “risk-on” with the Hang Seng and CSI300 leading the way, the pair up 2.46% and by 1.95% respectively, while the Nikkei and ASX200 were up 1.39% and by 0.96% respectively, a weaker Japanese Yen, rising commodity price, gains in the U.S Futures market and hopes of a resolution to the ongoing trade spat between the U.S and China offsetting concerns over the global economic outlook.

The Day Ahead:

For the EUR, key stats scheduled for release out of the Eurozone include November trade data out of Germany and November unemployment numbers out of the Eurozone.

Focus will be on Germany’s trade data, with forecasts being EUR positive, Germany’s trade surplus forecasted to widen marginally, though any upside could be offset should there be any negative updates from trade talks between the U.S and China.

At the time of writing, the EUR was up 0.11% to $1.1454, the upside come off the back of a weaker Dollar through the early part of the day.

For the Pound, there are no material stats scheduled for release through the morning, leaving the Pound in the hands of Brexit chatter and the ongoing parliamentary debate over the Brexit deal.

On the policy front, BoE Governor Carney is scheduled to speak, though with so much uncertainty over Brexit, there’s unlikely to be any hawkish commentary in spite of the UK economy’s resilience through the 4th quarter.

At the time of writing, the Pound was up by 0.14% to $1.2735, with updates from parliament the key driver through the day.

Across the Pond, there are no material stats scheduled for release through the day, leaving the Dollar in the hands of chatter from the Oval Office on the ongoing government shutdown and trade talks between the U.S and China, which are likely to be topics hitting the news wires later in the day.

On the policy front, the FOMC meeting minutes are due out later in the day, which will likely have a more muted impact on the Dollar than normal, FED Chair Powell’s recently more dovish stance on policy likely to be considered more current than the minutes from last month’s rate hike.

FOMC members Bostic, Evans and Rosengren are scheduled to speak through the day, the number of rate hikes forecasted for the year ahead in focus, Bostic having spoken earlier in the week of the need for a single rate hike for the year ahead.

At the time of writing, the Dollar Spot Index was down 0.08% to 95.828.

For the Loonie, with economic data limited to December housing starts, focus will be on the Bank of Canada this afternoon, the first interest rate decision of the year unlikely to deliver too many surprises.

While the BoC is expected to hold, forward guidance for the year ahead remains uncertain, with concerns over the economic outlook and some disappointing economic data out of Canada likely to keep the BoC on a more dovish footing.

The BoC’s policy report, rate statement and BoC press conference later in the day will be the key drivers, while further gains in crude oil prices could limit any damage should the BoC take a particularly dovish outlook on the economy.

The Loonie was up 0.31% to C$1.3233 against the U.S Dollar at the time of writing.

This article was originally posted on FX Empire