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Exchange4free Global Forex Report (15/03/2017)

USD

Today will be quite an important day for both emerging and developed markets and some volatility can be expected later this evening after the FOMC meeting, as it is expected that interest rates will be hiked.

It seems as though the market has fully priced in the rate hike but is more concerned with comments from FED Chair Janet Yellen as to how or if rates will be increased further in the medium term. Greater than expected rate increases in the medium term could be negative for emerging markets however, should those increases be linked to economic growth then it should have a positive effect for emerging markets.

EUR

The highlight of the day in the Eurozone will be the outcome of the Dutch election. The Far right PVV party has been a hot topic of discussion with their controversial policies of nationalism and anti-Islamic sentiment.

Although the Euro has been volatile in recent weeks, the overall view seems to be that the PVV party does not have enough support to have a significant influence in the government. Latest polls suggest it will only get between 21 and 25 seats in parliament - with the minimum requirement of 30 seats needed to have a chance of being strong enough to have a strong influence in government.

Elsewhere in the Eurozone there has been an improved outlook for monetary policy following strong data and optimism from the European Central Bank (ECB).

GBP

News out of London earlier in the week saw Theresa May announced the next steps for triggering Article 50 in order to leave the EU. She stated that the Brexit bill will be signed by the Crown Office in the next few days and thereafter announced in Parliament. This effectively means that Article 50 could be triggered as early as next week.

Sterling is also under increased political pressure from Scotland as they seek yet another referendum with a stronger belief in their own economy.

AUD

The Australian Dollar remains relatively subdued as it awaits the FOMC rate decision out of the US later tonight. The market did not seem to have a reaction to the release of positive data out of China earlier in the week (where Industrial output rose by 6.3 percent YoY in the first two months, according to the National Bureau of Statistics while fixed asset investment, a major driver of growth, increased by 8.9 percent year-on-year in the first two months which is down from 10.2 percent in the same period last year, however, it was the fastest pace since July.)

CHF

The Franc has been stubbornly strong against the Euro but with the ECB’s next policy move likely to reduce accommodation, the rate differential favours a recovery in the EUR/CHF. This could be limited, as the issue is that there are political risks facing the Eurozone in the coming months and that may keep a lid on the Euro and support the perceived safe- haven Swiss Franc. The Swiss National Bank stands ready to intervene if the Franc appreciates further.

With inflation being non-existent in Switzerland, the Swiss National Bank is likely to keep its monetary policy extremely accommodative for the foreseeable future.

ZAR

Market confidence was boosted by Chinese trade statistics last week, which showed a jump in imports. Strong USD data has started putting pressure on the Rand and other emerging markets. Speculation has flared up this week that UK Prime Minister Theresa May could begin the formal Brexit process as soon as Tuesday. If they had to begin this week we could see the Sterling ZAR pair fall.

We saw the Rand pushing through 13.15 today on its way to 13.19 against the Dollar, before coming back down to 13.07 at the time of writing. It is a near certainty that FED will be increasing rates, which will add Dollar strength. Results will be out later this evening.

Market data out of South Africa today showed that business confidence has risen to 40 points, up from 38 in the last 3 months of the year.

NGN

Nigeria’s central bank released a statement on Tuesday night that it had sold $150 million in currency forwards on the interbank market through commercial lenders. The Nigerian government unveiled a sweeping economic recovery plan last week that included the relaxation of foreign exchange restrictions with a view to achieving a market - determined regime. The government has said it will not allow the Naira to float freely.

Exchange4free Global Forex Report (01/03/2017)
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