Markets will turn their focus to the all-important US non-farm payrolls report on Friday. This jobs report is closely watched by the Federal Reserve and it could have implications for the Fed’s policy outlook.
Recent weak US economic data and warnings from Fed officials such as New York Fed William Dudley this week about tightening financial conditions, have prompted investors to cut back expectations that the US central bank will hike interest rates at the March policy meeting. That has caused the US dollar to weaken, and the ripple effects of that are starting to be felt in other financial markets as the yen, euro and renminbi appreciate and weigh on exporters.
In early Asian trade on Friday, the euro traded at $1.1199 in Asian trade on Friday, and up 3 per cent since late January when ECB President Mario Draghi signalled that the ECB could boost its monetary stimulus programme as early as March, a move that would normally be expected to weaken the single currency.
The yen was 0.1 per cent weaker at Y116.84 per dollar this morning, but is now stronger than before last Friday when the Bank of Japan surprised markets by adopting negative interest rates.
The Australian dollar dropped as much as 0.3 per cent to $0.7178 following disappointing Australian retail sales data. Retail sales in December registered no month-on-month growth from November, when they rose 0.4 per cent. It’s the weakest result since a 0.1 per cent decline in July. Economists expected growth of 0.4 per cent.
The aussie was also impacted by the release of the Reserve Bank of Australia’s Statement on Monetary Policy, where the central bank has trimmed its 2017 GDP forecast by 0.25 percentage points and guided towards lower inflation by the end of June this year.