- Higher Inflation Estimate Boosted Australian Dollar – AUD rates vulnerable to RBA dovishness
- Euro Under Pressure Ahead of Draghi Comments – Positive data failed to spark single currency demand
- Worsening UK Car Sales Slump Failed to Dent GBP – Markets unwound losses as BoE disappointment faded
- Lack of Fresh Data Failed to Limit US Dollar Strength – ‘Greenback’ still vulnerable to market risk appetite
A modest uptick in the TD Securities inflation estimate for October encouraged the ‘Aussie’ to make renewed gains at the start of the week. As the figure picked up from 2.5% to 2.6% on the year this suggests that inflationary pressure within the domestic economy is still building. While this is unlikely to be enough to significantly alter the current policy outlook of the Reserve Bank of Australia (RBA) the improvement still encouraged investors to pile back into the antipodean currency.
However, if the RBA maintains a generally dovish tone today AUD exchange rates are likely to come under fresh downside pressure.
While UK car sales slumped -12.2% on the year in October this failed to prevent the Pound returning to a bullish trend on Monday. Largely, this was due to GBP exchange rates recovering ground lost in the wake of last week’s Bank of England (BoE) policy meeting. With the BoE still looking on course to raise interest rates again next year and the economy as a whole showing signs of resilience the downside potential of Sterling was somewhat limited.
Any slowdown in the BRC like-for-like retail sales figure could see the Pound falter this morning, though, as Brexit-based uncertainty continues to weigh on the economic outlook.
Although the Catalan crisis quietened down somewhat at the start of the week the single currency was still largely under pressure. A sharp increase in the Eurozone producer price index figures was not enough to buoy the Euro, even as signs point towards rising inflationary pressure within the currency union. This softness was attributable to the relative strength of the US Dollar, with the policy divergence between the European Central Bank (ECB) and Federal Reserve looking set to widen in the coming months.
Dovish commentary from ECB President Mario Draghi may prompt the Euro to cede further ground tonight.
The ‘Greenback’ strengthened in spite of an absence of fresh domestic data, continuing to benefit from Friday’s positive labour market data. Some of the wind was taken out of the US Dollar’s sails, however, as New York Fed president William Dudley announced that he will retire in 2018. This creates even more uncertainty over the future outlook of the central bank, although markets remain confident in the prospect of further monetary tightening.
With another data-light day on Tuesday USD exchange rates could struggle to maintain a bullish footing, particularly if market risk appetite picks up.
Oil prices remained on an uptrend thanks to news of a series of political arrests in Saudi Arabia, a development which could bolster support for an extension of the OPEC-led production limiting deal. Even so, the mood towards the Canadian Dollar started to sour somewhat overnight thanks to the strength of the US Dollar. Investors were also jittery in anticipation of upcoming commentary from Bank of Canada (BOC) Governor Stephen Poloz.
Worries over Poloz’s speech are likely to keep the ‘Loonie’ on a weaker footing today, with markets bracing for further dovishness.
New Zealand Dollar
Confidence in the ‘Kiwi’ diminished further on the back of a disappointing Reserve Bank of New Zealand (RBZ) inflation expectation forecast. With signs pointing towards a slight dip in inflationary pressure this encouraged bets that the central bank will remain on hold for some time to come. Coupled with a contraction in the ANZ commodity price index, this left the New Zealand Dollar to trend lower against its rivals on Monday.
As jitters build ahead of the RBNZ policy decision later in the week NZD exchange rates are unlikely to find particular support.
November 7th 08:30 AUD Construction PMI (OCT)
November 7th 10:01 GBP BRC Like-For-Like Sales (YoY) (OCT) 0.9%
November 7th 13:30 AUD Reserve Bank of Australia Rate Decision 1.50%
November 7th 19:00 EUR European Central Bank President Draghi Speech
November 7th 20:00 EUR Eurozone Retail Sales (YoY) (SEP) 2.8%
Post by TorFX