Last admission to the Brexit rollercoaster
Extended Brexit talks
This year has been chaotic for markets, and while the world has had to collectively cope with a global pandemic, the UK government has also had to handle Brexit, which has been a seemingly never-ending rollercoaster since the EU referendum in 2016. The Pound has managed to recover some of Friday's losses—created by no-deal expectations—climbing by around 1.0% against the US Dollar as markets welcomed reports of extended Brexit talks. Brexit will likely be the market's main focus for the week ahead, and with no official deadline in sight, it could be an interesting end to the year with further Sterling volatility. In the week ahead, the Bank of England will announce its final monetary policy decision, but no change in the current interest rate or bond-buying is expected. Data detailing the UK unemployment rate, inflation, manufacturing, services, consumer confidence, and retail sales levels will all print this week too.
Q4 slowdown expected
The Euro has made some gains in the last few weeks but traded in a relatively tight range last week against a basket of other majors. The European Central Bank also announced it will be increasing its bond-buying by 500 billion Euros—a move investors had anticipated. ECB Chief, Christine Lagarde, suggested that there was expected to be a contraction in Q4 of 2020, after a rebound in Q3. Additionally, the spat between the EU, Hungary, and Poland was resolved, which has unblocked the Eurozone's 750 billion pandemic relief package. In the week ahead, industrial, manufacturing, and services data for the Eurozone will be released, as well as sentiment data and the final November inflation reading.
Fed policy announcement ahead
Last week the US Dollar moved slightly higher when risk sentiment declined but finished the week mostly unchanged against a basket of other major currencies. In the week ahead, the Federal Reserve is scheduled to announce it's latest monetary policy decisions, with markets anticipating no change in interest rates or quantitative easing, but perhaps a shift in language and guidance for the future of monetary policy which could create some USD volatility. Data relating to retail sales, manufacturing, services, and jobless claims will all be out in the week ahead as well.
AUD and NZD
Reaching highs as commodities rise
The Aussie Dollar hit its highest level against the US Dollar since June 2018 last week as iron ore prices rose. The Pound sank against the Australian currency, reaching its lowest level since December 2018, while also hitting its weakest level against the New Zealand Dollar since August 2019 as commodity currencies extended their gains. Vaccine-driven sentiment has helped boost these assets as the mass inoculation project begins.
This week, the Reserve Bank of Australia will release its latest meeting minutes which will give an indication as to how the bank's likely to approach monetary policy in the coming months. Meanwhile, manufacturing, services, and labour market figures will also be out this week, creating a busy data calendar for Australia. In New Zealand, one of the most significant events will be the latest growth rate data released on Wednesday. Expectations are for the growth rate to improve in Q3, rising from the previous -12.4% to -1.3% on the year.
Inflation and employment data in focus
The US Dollar hit its lowest level against the Canadian Dollar since April 2018 last week as riskier assets such as commodity currencies continued to climb. In the week ahead, inflation data for November will be released, as well as employment and retail sales numbers which could all offer some significant opportunities for the Canadian Dollar to move. Additionally, any oil price fluctuations could create CAD exchange rate movement.