Despite the commodity price rally starting to die back somewhat, the ‘Aussie’ remained on a stronger footing against many of the majors on Thursday. Hopes of a stronger Chinese economy and the prospect of increased infrastructure investment in the US have helped to keep the price of base metals buoyant. Although the heightened risk appetite of the post-Christmas period is unlikely to last for all that long, the outlook for the Australian Dollar still appears bullish in the short term.
If this morning’s private sector credit data fails to show an improvement on the year, however, the antipodean currency could fall back ahead of the weekend.
The Nationwide house price index bettered expectations in December, showing a 0.8% increase in prices on the month. This offered some encouragement to the Pound, easing concerns over the resilience of the UK housing market and the wider economy by extension. However, this was not enough to shore up Sterling against the majority of its rivals overnight. Uncertainty over Brexit continued hampering the outlook of the Pound, with investors inclined to favour higher-yielding assets at this juncture.
With nothing in the way of UK data set for release today, Sterling is likely to remain weighed down by speculation over Brexit.
Tensions flared once again over the Italian banking sector as both the nation’s Prime Minister and Finance Minister publically questioned the European Central Bank’s (ECB) raised recapitalisation requirement for Monte dei Paschi. Nevertheless the single currency trended higher, with markets relatively confident that the Italian government has the situation in hand. An improved M3 money supply reading for November added to the bullish mood of the Euro, pointing towards a higher level of inflationary pressure within the currency union.
Even so, if the situation in Italy shows signs of deteriorating, the Euro may struggle to hold onto its recent gains for long.
November’s US trade balance data proved less-than-encouraging, with the deficit widening from -61.9 billion to -65.3 billion, contrary to forecasts. This somewhat undermined the robust impression of the world’s largest economy, even though this softer showing is unlikely to deter the Federal Reserve from raising interest rates further over the course of 2017. Nevertheless, the US Dollar slumped in response to the figure, already softened by the limited market appeal of safe-haven currencies.
As markets will remain quiet today the ‘Greenback’ could well remain on a weaker footing at the close of the final trading week of 2016.
In spite of the American Petroleum Institute reporting a sharp increase in US crude oil stockpiles, Brent crude and the Canadian Dollar remained on an uptrend. Markets remained generally optimistic over the prospect of OPEC sticking to its pledge to reduce output, keeping the commodity supported. With higher-yielding currencies in demand there was little to stop the ‘Loonie’ from making gains overnight.
However, if signs point towards an increase in US oil output then the strength of the Canadian Dollar is likely to falter.
Risk appetite has helped keep the ‘Kiwi’ on a positive trend in spite of a lack of fresh domestic data to encourage demand. While the prospect of the Reserve Bank of New Zealand (RBNZ) returning to a monetary easing bias continues to hang over the ‘Kiwi’, this was not enough to dampen the appeal of the antipodean currency.
Providing the mood of markets remains positive then the New Zealand Dollar could trend higher, although its strength remains fragile.
December 30th 11:30 AUD Private Sector Credit (YoY) (NOV) 5.4%
December 30th 19:00 EUR Spanish Consumer Price Index (YoY) (DEC) 0.7%
December 31st 01:45 USD Chicago Purchasing Manager Index (DEC) 57.8
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