Australian Dollar Pushed Higher Ahead of Inflation Data

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Headlines

  • Weaker Consumer Confidence Failed to Dent Australian Dollar – Investors brace for second quarter inflation
  • Better-Than-Expected UK Business Optimism Limited Pound Downside – Exports see further slowdown
  • New Zealand Dollar Vulnerable to Narrowed Trade Surplus – Risk appetite benefits NZD exchange rates
  • Eurozone PMIs Suggested Weak Start to Third Quarter – Euro remains under pressure ahead of ECB meeting


Australian Dollar

While the ANZ Roy Morgan weekly consumer confidence index slipped, falling from 121.5 to 181.9, this failed to weigh down the Australian Dollar yesterday. AUD exchange rates instead benefitted from a general increase in market confidence, capitalising on a weaker US Dollar and temporary easing in trade war worries. This helped to boost the Australian Dollar against many of the majors, even as signs point towards softening domestic sentiment.

Volatility is likely for AUD exchange rates this morning on the back of the second quarter consumer price index, with forecasts pointing towards a fresh uptick in inflationary pressure.

Sterling

The latest CBI data proved a little mixed in nature, although the third quarter business optimism index bettered forecast to clock in at -3 rather than -6. Although the report suggests that UK manufacturing output strengthened in the second quarter this was driven by an increase in domestic demand. With export orders seeing a slowdown confidence in the domestic outlook remains limited, keeping GBP exchange rates under a degree of pressure.

A decline in the BBA loans for house purchase figure could encourage further selling of Sterling this evening.

Euro

July’s Eurozone manufacturing and services PMIs were not as positive as markets had hoped. While the manufacturing sector demonstrated signs of resilience the data revealed a fresh decline in exports, highlighting the negative impact of trade war jitters. With the service sector also showing signs of weakening growth momentum the mood towards the Euro soured as the currency union started the third quarter on a relatively weak footing.

Any weakening of the German IFO business climate index is likely to encourage EUR exchange rates to extend their losses further.

US Dollar

Although the Richmond Fed manufacturing index showed a smaller decline on the month than forecast this was not enough to keep USD exchange rates on a bullish trend. With market risk aversion fading the appeal of the safe-haven US Dollar naturally declined. However, investors were also encouraged to sell out of USD by a disappointing house price index and services PMI. While confidence in the underlying health of the US economy remains these weaker figures left the US Dollar under pressure.

As forecasts point towards a sharp contraction in new home sales for June USD exchange rates may continue to lack support tonight.

Canadian Dollar

Some of the wind went out of the Canadian Dollar’s sails overnight as the impact of last week’s strong data faded. While investors generally shrugged off worries over escalating geopolitical tensions between the US and Iran this failed to keep CAD exchange rates on a stronger footing. With the oil market still in a relatively fragile state the Canadian Dollar struggled to capitalise on improved investor sentiment.

However, if US crude oil inventories show a drawdown on the week this could offer CAD exchange rates a boost.

New Zealand Dollar

Even in the absence of domestic data the New Zealand Dollar strengthened on Tuesday thanks to the general improvement in market sentiment. With investors more inclined to favour higher-yielding assets once again NZD exchange rates pushed higher against most of the majors.

Demand for the New Zealand Dollar could diminish this morning, though, as investors expect to see a narrowing of the trade surplus for June. A decline in export volumes could prove particularly discouraging.


Data Released

July 25th 08:45 NZD Trade Balance (JUN) 200 million
July 25th 11:30 AUD Consumer Price Index (YoY) (2Q) 2.2%
July 25th 18:00 EUR German IFO Business Climate (JUL) 101.5
July 25th 18:30 GBP BBA Loans for House Purchase 39,000
July 26th 00:00 USD New Home Sales (MoM) (JUN) -2.9%

Post by TorFX

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