August’s consumer inflation expectation survey did little to improve the appeal of the Australian Dollar, easing from 4.4% to 4.2%. This suggests that inflationary pressure within the domestic economy is faltering, with officials flagging up the detrimental impact of the relative strength of the ‘Aussie’. Naturally this boosted bets that the Reserve Bank of Australia (RBA) will remain on hold for the foreseeable future, adding to the downside bias of the antipodean currency as risk aversion remained elevated.
Commentary from RBA Governor Philip Lowe could keep the Australian Dollar on a weaker footing ahead of the weekend, assuming he maintains a cautious view on monetary policy.
The latest raft of UK data proved to be less than encouraging, limiting the strength of the Pound. An unexpected widening of the trade deficit proved particularly disappointing, highlighting the economy’s continued vulnerability. Investors were further discouraged by a weaker NIESR gross domestic product estimate for the three months to July, which pointed towards a continued loss of economic momentum. This reduced the likelihood of the Bank of England (BoE) shifting towards a more hawkish outlook in the near future, removing further support from Sterling.
With no fresh UK ecostats due for release today the Pound is likely to remain vulnerable to downside pressure.
Markets were not impressed to find that French industrial production had contracted -1.1% on the month in June. As the French industrial sector has failed to achieve two consecutive months of growth in the last year this underscored the persistent weakness of this major Eurozone economy. With faith in centrist President Emmanuel Macron already diminishing this softer showing gave the Euro no cause for confidence. The continuing escalation of tensions between the US and North Korea also weighed on the single currency, which has weakened in response to a stronger US Dollar.
No change is expected from the finalised German consumer price index, which could offer the Euro some support on confirmation that inflation in the Eurozone’s powerhouse economy rose in July.
Although July’s US producer price index data pointed towards a modest easing in inflationary pressure the mood towards the ‘Greenback’ remained bullish. Investors continued to pile into the safe-haven currency as the war of words between the US and North Korea intensified further. Mounting worries that an armed conflict could be on the cards keep the US Dollar on a generally stronger footing. Even so, the Federal Reserve looks increasingly unlikely to achieve a third interest rate hike before the end of the year.
If tonight’s consumer price index report also falls short of forecast, though, this could dent demand for the US Dollar.
In spite of the new housing price index showing a smaller-than-expected increase on the month the Canadian Dollar remained on a steady footing overnight. This was largely thanks to a sustained improvement in oil prices, which have been buoyed by speculation that the global oversupply glut could be easing. As OPEC raised its 2018 forecast for crude demand this offered a further boost to the ‘Loonie’, even as the wider sense of market risk appetite remained limited.
If oil prices can gain further traction ahead of the weekend this is likely to maintain some degree of support for the Canadian Dollar.
Even though the Reserve Bank of New Zealand (RBNZ) policy meeting offered no particular surprises the dovish tone of policymakers was enough to dent the ‘Kiwi’. As the RBNZ warned that the New Zealand Dollar is overly strong the prospect of any return to higher interest rates looked decidedly diminished. With demand for higher-yielding assets still weighed down by wider global political developments this left NZD exchange rates on a sharp downtrend.
Even so, if this morning’s manufacturing PMI points towards robust economic growth the New Zealand Dollar could find a rallying point.
August 11th 08:30 NZD Manufacturing PMI (JUL) 56.5
August 11th 09:30 AUD RBA’s Lowe appears before House Economics Committee
August 11th 16:00 EUR German Consumer Price Index (YoY) (JUL F) 1.7%
August 11th 22:30 USD Consumer Price Index (YoY) (JUL) 1.8%
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