Negative rate debate heats up
Following three strong weeks after the UK-EU trade agreement was made, Sterling finished last week slightly softer. Given the UK's current state with the ongoing pandemic, the expectations for negative interest rates have risen, with some economists forecasting a cut in 2021. Bank of England policymaker Silvana Tenreyro will hold an online discussion this week focusing on 'the international evidence of the transmission of negative interest rates', which could help to inform speculation. Other policymakers will also be speaking in the week ahead, alongside the release of industrial and manufacturing stats, and monthly growth numbers for November which will be interesting given the lockdown during that time.
Pressuring the common currency
While the Euro had a strong start to last week, reaching above the 1.23 level against the US Dollar, and nearing 1.10 versus the Pound, it finished the week relatively unchanged measured against a basket of other majors. Strength from the US Dollar pushed the Euro lower as the week progressed, and tighter lockdown measures also weighed on the bloc and the common currency. European Central Bank Chief Christine Lagarde will be speaking in the week ahead, alongside data from the Eurozone measuring industrial output and French and Spanish inflation.
The US Dollar managed to regain some strength last week, and this week the Dollar has continued that trend, marking gains against a basket of other major currencies. However, there's the potential for more Dollar weakness in the future as the new US President, Joe Biden, potentially starts implementing further fiscal spending. Additionally, one Federal Reserve representative has suggested that there likely won't be a reprieve in the central bank's quantitative easing in 2021. Other Fed members will speak throughout the week, while ecostats in the form of inflation, manufacturing, retail, and sentiment figures come to light.
AUD and NZD
reaching its highest level since March 2018. Meanwhile, the New Zealand Dollar also climbed further, claiming the strongest readings since April 2018.
Some analysts have suggested that the combined effect of rising commodity prices—such as iron ore, one of Australia's most lucrative exports and which has surged by as much as 116% in the last 12 months—and the country's overall success in quelling the coronavirus could provide additional support for the Aussie in coming months. Markets will closely watch economic data detailing consumer sentiment and retail spending in order to gauge how the nation's recovery is progressing. Additionally, robust data from Australia and New Zealand's largest trading partner, China, could further boost the Trans-Tasman currencies. Similarly, New Zealand's approach to the pandemic and the levels of normalcy Down Under have supported the Kiwi exchange rate. So far in 2021, New Zealand Dollar to Japanese Yen exchange rates have breached their 2020 highs, climbing by around 26% since March's 2020 lows, and remains about 2.0% off the highs seen in 2019. As New Zealand is Covid free, NZD strength is unlikely to wane too much in the near future while other countries across the globe face fresh lockdowns.
There are no highly significant pieces of data out for Australia and New Zealand in the week ahead. Still, both nations will release Building Permits stats, alongside Australia's Home Loans and New Zealand's Electronic Retail Card Spending stats which could all provide moderate influence for the Trans-Tasman currencies.
Loonie climbs on the back of oil prices
Last week, the US Dollar to Canadian Dollar exchange rate continued to soften, hitting its weakest level since April 2018. On Friday, the Canadian Dollar strengthened against its US counterpart, despite the economy shedding 63,000 jobs in December—a more considerable fall than economists had forecast. The Loonie tracked oil prices higher as Saudi Arabia vowed to cut output. In coming months, eyes will be on the Bank of Canada to see if it offers up any further monetary stimulus such as lower interest rates—rates are currently sitting at a record low of 0.25%. It's a quiet week for Canadian data meaning the CAD exchange rate could be receptive to any changes in commodity prices and geopolitical developments.