Consumer Confidence Lifts the AUD, with the BoC and Loonie in Focus

Earlier in the Day:

Economic data released through the Asian session this morning was limited to January consumer sentiment and November home loans out of Australia.

It was good news all round for the Aussie Dollar, with consumer sentiment rising 1.8% to a 4-year high in January, building on December’s 3.6% increase.

The January increase was attributed to a significant improvement in sentiment towards the Australian economy. Compared with December, sentiment towards economic conditions over the next 5-years jumped 5.4% and 12.4% compared with January of last year. Sentiment towards economic conditions over the next 12-months was also a boost, rising by 2.6% month-on-month and 10.4% year-on-year.

On the downside, family finances vs a year ago fell by 1.1% when compared with December, whilst up 11.2% when compared with January of last year.

The upbeat sentiment towards the economy was attributed to a sharp improvement in sentiment towards labour market conditions, with the Unemployment Expectations index falling by 3.8% from December, with the index sitting at more than a 6-year low.

While the numbers were certainly positive, there will be some concern over family finances, with tepid wage growth and rising household debt weighing that could translate into weaker consumer spending.

The Aussie Dollar moved from $0.7965 to $0.79720 upon release of the data, with a 2.1% jump in home loans seeing the Aussie Dollar move from $0.79684 to $0.79891 upon release a little later in the session, with the surge in home loans supported by softer house prices and a shift in sentiment towards labour market conditions and the economy.

At the time of writing, the Aussie Dollar was up 0.03% to $0.7963, easing back from an intraday high $0.7999.

For the Yen, it was another bad start to the day, with the Yen down 0.34% to ¥110.83 against the Dollar, which managed recover from an early session dip.

In the equity markets, it was a sea of red, with the Nikkei sliding 0.63%, and the Hang Seng (-0.57%), ASX200       (-0.50%) and the CSI300 (-0.48%) all in the red at the time of writing, as the markets look ahead to tomorrow’s GDP numbers out of China.

The Day Ahead:

It’s a relatively quiet day on the data front for the EUR, with economic data out of the Eurozone limited to December’s finalized inflation figures. With the EUR on the rampage, today’s stats are unlikely to provide too much upside barring an upward revision to core inflation figures, with the markets now looking towards the ECB for any guidance on what to expect in the upcoming policy meetings.

With the EUR sitting at a 3-year high, there could be some jawboning to pull the EUR back, though Draghi and the team will be hoping that the Dollar will find its feet, with the U.S economy performing better than the Dollar suggests.

Outside of the data, the markets will also be keeping a close eye on Germany, with coalition talks on the brink of collapse, which could see the end of Merkel as Chancellor. Such an outcome would certainly be considered a shock event for the markets.

At the time of writing, the EUR was down 0.02% to $1.2257, easing back from an intraday high $1.2323, with events in Germany likely to be the key driver through the day.

For the Pound, it’s a quiet day on the economic calendar, with no material stats scheduled for release, leaving the Pound in the hands of Brexit chatter through the day and BoE MPC member Saunders, who is scheduled to speak this afternoon.

The markets will be looking to get a sense of whether the BoE is getting ready to make another move, following the high December inflation figures, which will leave the Pound sensitive to any policy chatter. From a Brexit perspective, a parliamentary vote on the EU (Withdrawal) Bill will be in focus and, while the Bill is likely to be voted through the House of Commons, the House of Lords may be an altogether different proposition for the Prime Minister and the Bill’s safe passage.

At the time of writing, the Pound was down 0.07% to $1.3783, easing back from an intraday high $1.3836. Interestingly, if there is any hint of an end to Merkel’s political career, there could be some upside for the Pound, with Merkel likely to be one of the obstacles to a soft Brexit.

Across the Pond, economic data out of the U.S is limited to December industrial production figures, which are forecasted to be Dollar positive, though how the Dollar performs through the day will be largely dependent upon progress to avert a government shutdown this weekend.

If the threat of a government shutdown is not enough to pull back the Dollar, perhaps news of former chief strategist Steve Bannon being subpoenaed by Special Counsel Mueller to testify to a grand jury on possible collusions with the Russians will have the markets a little jittery.

While the U.S Dollar is struggling, the Asian session saw the Dollar Spot Index rebound from a session low 90.113, to sit at 90.514, a gain of 0.13% at the time of writing.

For the Loonie it’s a big day. The Bank of Canada’s interest rate decision and accompanying policy report and rate statement will be of particular interest. Expectations are for the Bank of Canada to at least be on the hawkish side, while some expect the BoC to lift rates to 1.25% this afternoon. Concerns over a possible U.S withdrawal from the North American Free Trade Agreement has tempered expectations of a rate hike in recent days.

At the time of writing the U.S Dollar was up 0.13% to $1.2451 against the Loonie, though how the BoC decides to move ahead will be pivotal later today, with the BoC’s options being a hawkish hike or a dovish hike or even a hold ahead of the next round of NAFTA talks that kick off next week.