The forex trading week has come and gone. Time to take a look at the currencies and/or currency pairs that were on the move and what moved them. Were you able to profit from any of this week’s top movers?
Looks like the main theme for this trading week is Aussie weakness, although forex traders were buying up the pound while dumping the Swissy as well. And if we also look at the list of honorable mentions, we can clearly see that forex traders were giving the Loonie some much-needed love and attention, even at the expense of the U.S. dollar. Wait, what? How did that happen?
Well, read on and find out. Also, find out why the Aussie was so weak and why the pound was able to give the Greenback (and the other currencies) a mighty good whupping. Yee-Haw!
Weak Australian CPI
- q/q: 0.5% actual vs. 0.7% expected, 0.7% previous
- y/y: 1.5% actual vs. 1.7% expected, 1.5% previous
The RBA’s meeting minutes revealed last week that the RBA was not in a rush to cut rates since “the moderate expansion of the economy had continued” and “the depreciation of the Australian dollar” has supported “rebalancing from the resources sector towards non-mining activity.”
That rhetoric has allowed the Aussie dollar to resist the Aussie bears besieging it. But that resistance ended when Australia printed its weak CPI readings on Wednesday, igniting fears among forex traders that the RBA would need to cut rates again.
Interestingly enough, the main drag to Australia’s quarterly CPI reading was not the recent decline in oil prices since the “transport” component had a positive contribution of 0.1%, although the “automotive fuel” sub-component was listed to have declined by 2.3%. In fact the real drags were the “clothing and footwear” and “communication” components, which respectively subtracted 1.1% and 2.0% from the final CPI reading.
Hawkish FOMC Statement
Forex Gump already has a more in-depth write-up for this event, so click that link if you want the specifics. The gist of it all, though, is that the US Fed was perceived by forex traders to be more hawkish and the default scenario for the December meeting is therefore a rate hike.
The perceived hawkishness logically pumped up demand for the Greenback, allowing it to slap around all of its forex rivals. The Swissy and the euro, in particular, were noticeably weak, probably because the SNB and the ECB are members of the easy-money club. Although I wouldn’t discount the possibility that the SNB was weakening the Swissy again.
The pound got an initial pounding from the Greenback as well, but it was actually doing pretty well against the other currencies, especially against the members of the easy-money club. What sorcery is this, you ask? Well, I actually already gave you the most likely answer in last week’s Top Forex Market Movers – monetary policy divergence.
As the only other central bank that’s open to a rate hike, forex traders were probably pricing-in the increased likelihood that the BOE will be hiking rates by Q1 or Q2 of next year now that the US Fed is perceived to be more hawkish. And while BOE Governor Mark Carney has been fighting off allegations that a BOE rate hike is dependent on the US Fed’s action, the historical records show that the BOE has been following the US Fed’s lead… most of the time.
Oil Rallies, Iron Ores Slump
- Oil climbs higher for the week, ends the month on a positive note
- Iron ore prices decline for third consecutive week
Oil started surging higher on Wednesday, thanks to the smaller-than-expected figure for US crude oil inventories (3.4M vs. 3.7M expected, 8.0M previous) and was then spurred even higher by reports that US oil production was slowing down, giving oil prices enough “oomph” to break three consecutive weeks of declines to end the month on a positive note. Naturally, this was very good news for the Loonie. And if you’re wondering why, then check out our School’s article on How Oil Affects USD/CAD.
As for iron ores, which is a major Australian export commodity, they were moving down under for the third consecutive week, which is bad news for the Land Down Under, especially since the lower prices were attributed to a simultaneous increase in supply and a drop in Chinese demand.
Bonus: Slowdown in US Q3 2015 GDP
- Advanced estimate
- q/q: 1.5% actual v.s. 1.6% expected, 3.9% previous
- y/y: 2.0% actual v.s. 2.7% previous
Interest rate junkies were all over the US dollar due to the FOMC statement, but only one Greenback pair made it to this week’s list of top 10 movers, and the honorable mentions even show that the Greenback was actually weak against the pound and the Loonie. Why is that?
The likely reason for that was a one-two punch from post-FOMC profit-taking and an influx of sellers (and Greenback bulls getting squeezed out) by the worse-than-expected advanced estimate for US Q3 2015 GDP. Heck, the poor US GDP reading even allowed the pound to recover (and then some) from both the FOMC statement selloff and the earlier decline sparked by the disappointing UK GDP. I bet those who took the time to read Forex Gump’s 3 Things to Remember for the Advanced Q3 U.S. GDP are pretty happy, huh?
Do you think these catalysts were enough to spark longer-term forex trends or did they just cause a knee-jerk reaction? Better keep these market themes in mind when planning your trades for next week!