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Foreign Exchange Trading: April in Review

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Major highlights of Forex Trading News for April 2014

  • GBP outperforms in April strengthening 0.90% on a trade-weighted basis as UK economic data positively surprises
  • The USD weakened some 0.30% on a trade-weighted basis during April
  • NZD/USD ends the month 1.3% lower despite touching a three-year high earlier in the month. RBNZ lifts interest rates

US Dollar

The USD weakened some 0.3% on a trade-weighted basis during April. The USD put in a mixed performance against the currencies monitored in the table below.

 End Mar ‘14End Apr ‘14M/M% Change
USD TWI80.179.8-0.3

The USD began the month stronger encouraged by some improvement in March US non-farm payrolls, lifting the TWI to a monthly high of 80.59 on April 4. But the USD began to depreciate thereafter, not so much in reaction to US economic data, which generally pointed to an improving US economy, but more as a result of persistent negative real short-term interest rates and the US$380 billion US current account deficit.

The USD did however decline after the weather-affected US Q1 GDP rose a modest 0.1% (saar) far less than expectations for a 1.2% (saar) rise. Subtracting from GDP growth was net exports, business investment and government expenditure. Contributing to GDP growth was household consumption. The monthly low of 79.33 on the TWI was recorded on April 10.

The 30 April FOMC statement was largely as expected, with no major changes to the economic outlook, monetary policy guidance and no dissenters. The Fed tapered its asset purchases by $10 billion to $45 billion as expected. The Fed repeated that they will “maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends”…. and…. “the Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

 Australian dollar

The AUD/USD ended the month of April little changed (+0.2%). The AUD also put in a mixed performance against the major cross rates, generally weakening vis-à-vis the European currencies, but strengthened vis-à-vis the NZD and ended the month up modestly (0.6%) on a trade-weighted basis (please see accompanying table).

 End Mar ‘14End Apr ‘14M/M% Change

On 3 April, AUD/USD touched its monthly low of 0.9206 and then spent the early part of the month appreciating as global base metal prices lifted and in further response to the RBA’s neutral bias. The AUD/USD reached its monthly peak of 0.9461 on 10 April as Australia’s March employment number again surprised to the upside, leading to a large 0.2% fall in Australia’s unemployment rate to 5.8%.

However, the AUD began to modestly depreciate over the second half of the month. Some mild softening in the growth rates of China’s Q1 economic data as well as some further weakness in China’s currency over the remainder of the month arguably helped to correct the AUD from its monthly high. The AUD further depreciated after Australia’s Q1 inflation numbers rose less than expected, leading to a downward adjustment in Australia’s short-end interest rates relative to the US.

However, the subsequent depreciation in the AUD was not to a fresh monthly low (which as mentioned above, was achieved on 3 April).

New Zealand dollar

NZD/USD lifted to a monthly high and to its highest level since mid 2011 of 0.8746 on 10 April. However, the NZD/USD then began to modestly depreciate after the fortnightly global dairy trade auctions illustrated only a modest increase in global dairy prices (New Zealand’s largest export) after a series of seasonal declines.

NZD/USD also declined modestly after New Zealand’s Q1 inflation rose 0.3% (QoQ) to be 1.5% (YoY) somewhat lower than expected. Assisting the decline in the NZD was the fall in New Zealand’s two-year swap rates to their lowest levels in more than a month.

The RBNZ lifted interest rates 25bpts to 3.00% as expected on 24 April.

The RBNZ repeated that “the Bank does not believe the current level of the exchange rate is sustainable.” But the RBNZ also acknowledges the helpful job the exchange rate is doing to help contain inflation pressures….”the speed and extent to which the OCR will be raised will depend on economic data and our continuing assessment of emerging inflationary pressures, including the extent to which the high exchange rate leads to lower inflationary pressure.”

With regards to the level of interest rates, The RBNZ believes “it is necessary to raise interest rates towards a level at which they are no longer adding to demand.” By the end of the month, New Zealand’s two-year swap rates had partially recovered their fall after the lower than expected Q1 inflation numbers and the NZD/USD lifted into month-end.

Japanese yen

On a TWI basis, the JPY rose by 0.8% in April (USD/JPY declined 0.8%). JPY outperformed the other currencies monitored in the Month in review by 0.5% in the month. AUD/JPY fell by 0.6% in April. Please see the accompanying table.

USD/JPY tended to follow the path of the US ten-year treasury yield over the month of April. USD/JPY started the month firmer, pushing to its highest level since January 2014 in response to higher US treasury yields reacting to the relatively firm (close to expectations) US non-farm payrolls release.

However, the US post-payrolls, the decline in US bond yields dragged USD/JPY lower through until mid-April. USD/JPY hit its low for the month (101.33) on 11 April, following the release of minutes from the Bank of Japan’s 10-11 March meeting.

USD/JPY ground modestly higher, and traded in a tight range through to the end of the month. Japanese economic data continued to disappoint, with the Japanese economic surprise index reaching its lowest since late 2012. Trade data for March (released on 21 April) was significantly weaker than expected, continuing a longer run pattern of monthly trade deficits, which have helped contribute to yen weakness over the last eighteen months.


EUR/USD endured a volatile month for foreign exchange trading, but ended the month slightly firmer (+0.3%) and flat on a trade-weighted basis. EUR/USD came under some downward pressure early in the month after the ECB’s monthly meeting, where ECB President Mario Draghi was somewhat more dovish than expected. In the post meeting press conference Draghi indicated that ‘there was a discussion about QE, it wasn’t neglected’ and that ‘we will continue working on that in the coming weeks’. EUR/USD further declined to touch its monthly low of 1.3673 on 4 April after the close-to-expectations US March non-farm payrolls number.

However, EUR/USD spent the next week recovering to its 11 April monthly high of 1.3906 after a number of ECB speakers played down the deflationary risks in the Eurozone. Added to that, ECB member Mersch noted that the prospect of bond-buying QE by the ECB is a “theoretical concept” and that there is a “long way” from theory to implementation. Nevertheless, the ECB’s Vice President stressed that the ECB was surprised by the “very low” March inflation.

EUR/USD then opened the following week slightly lower following 12-13 April weekend comments from ECB President Draghi. President Draghi was quite explicit, stressing that although the EUR is not a policy target, “further EUR strengthening could trigger additional ECB easing”.

The EUR/USD remained in a relatively tight range for the rest of the month supported by Eurozone’s large 2.3% current account surplus.

The EUR/USD lifted back towards its monthly high late in the month in response to some weakness in the USD (reacting to the low Q1 US GDP outcome) and after Eurozone core annual inflation lifted to 1.0% as expected. Adding some additional strength to EUR/USD were comments by ECB Vice President Vitor Constancio, who stated that Eurozone banks have “strengthened their balance sheets.”

British Pound

GBP/USD rose 0.9% in the month of April and 0.9% on a tradeweighted basis. GBP strengthened against all the currencies monitored in the Month in Review, and reached its month high at the end of the month.

An improving UK economy was the main driver behind GBP strength.

GBP/USD received a large boost on 8 April after UK February industrial production rose 0.9%, some 3 times more than expected. The UK February trade deficit was also slightly smaller than expected, while RICS house price indicators proved stronger than expected.

Adding to further GBP strength was a stronger than expected February labour market report, where the smoothed ILO unemployment rate fell significantly more than expected to a five-year low of 6.9%.

GBP further strengthened into month-end as the USD softened in response to weaker than expected US Q1 GDP data.

Swiss franc

The CHF was flat on a TWI basis in April. The CHF declined relative to the other currencies monitored in the Month in Review, particularly the JPY (-0.8%) and GBP (-0.8%). Please see the accompanying table.

USD/CHF largely followed the fortunes of the USD over April. The rise in the USD over the first week of April saw USD/CHF lift to its monthly high of 0.8953 on 4 April in the wake of the non-farm payroll data.

Throughout the month CHF received additional support during periods of heightened market uncertainty regarding tensions in the Ukraine/Russia. During periods of uncertainty the CHF tends to strengthen as participants are drawn to the perceived safety of Switzerland’s large current account surplus (equal to 12.4% of Swiss GDP).

USD/CHF fell 2.3% from its monthly high of 0.8953 on 4 April to its monthly low of 0.8744 on 11 April as the USD softened and the USSwiss two-year yield differential narrowed by 15bpts to 37bpts.

Stronger than expected Swiss March CPI inflation also supported CHF.

From the middle of April the decline in the US-Swiss two-year yield differential widened again, supporting a lift in USD/CHF. USD/CHF ground higher through to 22 April. An upturn in violence in the Ukraine and a weakening in NASDAQ biotechnology and social media stocks weighed on USD, and saw USD/CHF grind lower into month’s end.

USD/CHF fell further into month end after the USD softened in response to weaker than expected US Q1 GDP data.

Canadian dollar

On a trade-weighted basis CAD rose 0.5% in April. However, CAD was mixed against the currencies monitored in the Month in Review. The CAD outperformed the USD (USD/CAD -0.9%), CHF, AUD, EUR and JPY in April. The CAD depreciated 0.1% against the GBP in April.

Please see the accompanying table.

USD/CAD started the month with a high of 1.1070, but faded quickly from there. The Canadian employment report for March was the first major catalyst for the CAD in April. Canadian employment significantly exceeded expectations, and the Canadian unemployment rate fell to 6.9%. USD/CAD pushed lower through to 9 April, in line with a widening of the US-Canada two-year bond spread from -0.56bpts to 0.71bpts.

USD/CAD spiked higher following the Bank of Canada’s (BoC’s) monetary policy meeting. The Bank of Canada kept rates on hold, and trimmed its near term GDP outlook in its quarterly monetary policy report. The BoC maintained their view that Canadian growth would firm over 2014 and 2015 before moderating back to potential in 2016.

Headline inflation forecasts were raised slightly, but the BoC maintained its expectation for core inflation to remain below the bottom end of the BoC’s mid-point 2.0% target rate until 2016. The dovish tone from the BoC, was reinforced by BoC Governor Stephen Poloz when he stated that “rate cuts cannot be taken off the table at this stage.” This encouraged USD/CAD higher.

USD/CAD then traded in a narrow range between 1.1000 to 1.1050 from the middle of April before falli9ng into month-end after weaker than expected US Q1 GDP economic data.

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