Currency View by OFX

Last week’s news

• The US jobless rate dropped to 6.3% in January with the economy creating 49k jobs last month. The small increase in non-farm payrolls partly reversed the dip in job creating during December and matched economists’ expectations of a 50k gain. The drop in the unemployment rate from 6.7% in December was driven more by US workers exiting the labour force than rising employment. The weakness of the US job market has been one of the catalysts for President Joe Biden’s drive to enact a new $1.9tn economic stimulus plan during his first month in the White House.
• Australian farmers have warned that the country’s trade dispute with China and supply chain disruption linked to the coronavirus pandemic will cost the industry $28bn over the next decade. Last Friday, the National Farmer’s Federation appealed to the AUS Government to invest $3.5bn to support a trade strategy aimed at diversifying the nation’s export markets and improving supply chains. Beijing has targeted Australia’s farm sector over the past 18 months, slapping trade sanctions on barley, seafood, wine and other exports as bilateral ties have sunk to their lowest level in a generation. Sectors affected are now racing to diversify their clients and are looking towards the US and Canada to fill their deficit on exports.
• Joe Biden has said the US will finally end its support for the war in Yemen, marking a break with six years of military assistance from Washington for the Saudi-led coalition that is fighting Iran-linked rebels in the depleted Arab country. Mr Biden stated, ‘we are also stepping up our diplomacy to end the war in Yemen, a war which is a humanitarian and strategic catastrophe’. He added that his team would support a UN-led ceasefire initiative and the restoration of ‘long dormant peace talks’. The announcement comes after the White House also suspended arms sales to Saudi Arabia and the UAE, in the first move that Mr Biden intends to rest US relations with the Arab regimes.
• Despite the poor performance of the Canadian labour market, the loonie outperformed the euro, Japanese yen, Swiss franc, and US dollar last week by 0.9%, 0.8%, 1.1%, and 0.2% respectively. The loonie currently seems to be more affected by oil prices and the global stock market rather than internal fundamentals. The S&P 500 also had positive gains of 4.65% last week. Canadian employment continued to decline in January, primarily in the sectors most impacted by the pandemic: retail, restaurants, and bars and in part-time jobs. In Canada, the frustratingly slow vaccine rollout might add pressure on the loonie over the following few days.

Looking ahead

• UK treasury officials have been assigned to work on the government’s ‘road map’ for lifting England’s coronavirus lockdown, to ensure that scientific information is matched by rigorous economic advice. Boris Johnson will set out his plan for coming out of England’s lockdown in the week beginning February 22, and the Prime Minister is expected to publish proposals for a phased reopening of the economy. The Government are keen to reopen the UK as swiftly as possible; however, are cautious. Some ministers expect non-essential shops to be open in early April followed by the hospitality sector in May.
• Several influential economists and former policymakers have some doubts around Biden’s gigantic $1.9tn plan. They agree the US needs further fiscal stimulus; however, they have also highlighted there might be a substantial economic cost in terms of inflation, stock market bubbles and financial instability. Especially in the context of the recent retail story of Reddit equity investors; they argue stimulus checks should be more targeted.

Key market events this week

• Tuesday
  • MXN Inflation Rate YoY (Jan)
• Wednesday
  • USD Core Inflation Rate YoY (Jan)
  • AUD Westpac Consumer Confidence Index (Feb)
  • Riksbank Interest Rate Decision
• Thursday
  • Bank of Mexico (Banxico) Interest Rate Decision
• Friday
  • GBP Gross Domestic Product QoQ & YoY (Dec)
  • USD Uni of Michigan Sentiment (Feb)