Australian Dollar Extended Losses Ahead of Fed Interest Rate Hike

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Headlines

  • AUD Exchange Rates Remained Under Pressure Ahead of Fed Meeting – Lack of risk appetite continues to limit Australian Dollar
  • Stronger UK Wage Growth Offered GBP Exchange Rates Fresh Boost – Odds of May BoE rate hike climbed
  • Falling US Crude Inventories Boosted Canadian Dollar – Stronger oil market benefits commodity-correlated CAD
  • New Zealand Dollar Softened in Anticipation of RBNZ Decision – Increasing policy divergence with Fed limits NZD appeal

Australian Dollar

While the Westpac leading index showed a modest improvement on the month in February this failed to encourage any particular recovery for the Australian Dollar. As markets braced for the latest Federal Reserve policy decision the appeal of the risk-sensitive ‘Aussie’ naturally remained limited, with an interest rate hike considered all but inevitable. As doubts remain over the outlook of the Australian economy there was little reason to favour the Australian Dollar yesterday.

Further weakness could be in store for AUD exchange rates this morning if the latest Australian labour market data fails to paint a more encouraging picture of the domestic outlook.

Sterling

GBP exchange rates continued their general push higher on Wednesday after the latest UK average weekly earnings figure bettered forecast. With wage growth accelerating to 2.8% in the three months to January this suggests that the year-long cost of living squeeze could soon be over. As Bank of England (BoE) policymakers have focused on the relative weakness of domestic wage growth in recent months this stronger showing boosted hopes in the prospect of a May interest rate hike.

If the BoE adopts a more hawkish outlook in its latest meeting minutes this may give Sterling further grounds for strength today.

Euro

An absence of fresh Eurozone data left the Euro somewhat lacking in direction yesterday, although the single currency still made gains against some of its weaker rivals. Even so, confidence in the domestic outlook remained rather muted, with forecasts pointing towards a softening in March’s Eurozone manufacturing and services PMIs. As a result, EUR exchange rates struggled to find any significant support as markets braced for today’s raft of data.

Particular focus will fall on the European Central Bank’s (ECB) latest Economic Bulletin, which could give the Euro a leg up if the tone of policymakers proves more optimistic.

US Dollar

A surprisingly sharp rebound in existing home sales was not enough to bolster the appeal of the US Dollar overnight. This was largely due to market positioning ahead of the Federal Reserve’s March policy meeting, with the impact of a fresh interest rate hike already effectively priced into USD exchange rates. Even though the US economy continues to demonstrate signs of strength questions remain over the likelihood of the Fed pursuing a more aggressive course of policy action this year.

Tonight’s leading index figure may undermine the appeal of the US Dollar, which forecasts pointing towards a loss of economic momentum on the month.

Canadian Dollar

Confidence in the Canadian Dollar picked up in the wake of a sharp, surprise drawdown in US crude oil inventories, which eased concerns over the global supply outlook. While the US still looks set to ramp up its production the price of Brent crude rallied solidly overnight, boosting the commodity-correlated CAD. The prospect of a continued decline in Venezuelan production offered additional support to the market.

As anticipation mounts for tomorrow’s Canadian consumer price index data, though, CAD exchange rates may struggle to hold onto any positive momentum.

New Zealand Dollar

Even though New Zealand credit card spending continued to strengthen in February, rising 7.0% on the year, demand for the New Zealand Dollar remained generally limited. Investors were reluctant to buy into the ‘Kiwi’ ahead of the Reserve Bank of New Zealand (RBNZ) policy meeting, as the central bank was expected to maintain a relatively dovish outlook.

The general sense of market risk appetite is also likely to keep NZD exchange rates under some degree of pressure in the near term.

Data Released

March 22nd 06:00 NZD Reserve Bank of New Zealand Rate Decision 1.75%
March 22nd 10:30 AUD Unemployment Rate (FEB) 5.5%
March 22nd 19:00 EUR European Central Bank Publishes Economic Bulletin
March 22nd 22:00 GBP Bank of England Rate Decision 0.5%
March 23rd 00:00 USD Leading Index (FEB) 0.5%

Post by TorFX

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