Australian Dollar Pushes Higher in Spite of Weakening Inflation Expectations

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  • Weaker Consumer Inflation Expectation Failed to Dent AUD – Signs still point towards less hawkish RBA outlook
  • European Commission Lowered Eurozone Growth Forecast – Euro trended lower as confidence in domestic outlook eased
  • Improved New Zealand Food Price Index Boosted ‘Kiwi’ – NZD exchange rates shrug off trade war concerns
  • US Dollar Unable to Capitalise on Higher US Inflation – Investors unimpressed as inflation overtakes wage growth

Australian Dollar

While July’s consumer inflation expectation figure dipped on the month, easing from 4.2% to 3.9%, the Australian Dollar returned to a stronger footing yesterday. Even though this weakening in expectations is likely to encourage the Reserve Bank of Australia (RBA) to maintain a more dovish outlook AUD exchange rates shrugged the data off. This was largely due to the general improvement in market risk appetite, with investors reversing much of Wednesday’s losses as the appeal of the US Dollar diminished.

In the absence of any fresh Australian data today the ‘Aussie’ may struggle to hold onto its gains for long, though.


The publication of the government’s Brexit white paper failed to particularly boost GBP exchange rates on Thursday. With the Conservatives still clearly split over the proposals, which lean towards a softer form of Brexit, political jitters look set to persist. As MPs analyse the details of the paper this could stoke a potential leadership challenge against Theresa May, with Brexiteers unlikely to support the plans. If EU negotiators also push back against the suggestions the mood towards the Pound could sour further.

Brexit-based speculation is likely to keep GBP exchange rates under pressure today.


News that the European Commission had cut its forecast for Eurozone growth in 2018 from 2.3% to 2.1% weighed heavily on the Euro. Investors were also discouraged by a warning in the European Central Bank’s (ECB) latest meeting minutes, which highlighted the risk that trade tensions pose to the domestic economy. This dampened hopes that the currency union will be able to recover its lost momentum in the second half of the year, leaving EUR exchange rates on a fresh downtrend.

A dip in June’s German wholesale price index could prompt the single currency to extend its losses further this afternoon.

US Dollar

Even though the US consumer price index pushed higher in June, strengthening from 2.8% to 2.9%, this failed to boost the US Dollar against its rivals. As wage growth in June only clocked in at 2.7% this stronger showing indicates that inflation is now outpacing earnings. While this is likely to encourage the Federal Reserve to adopt a more aggressive pace of monetary tightening this does not bode well for US households and consumer spending.

If the University of Michigan sentiment index weakens as forecast this is likely to put further pressure on the US Dollar tonight.

Canadian Dollar

The Canadian Dollar struggled to hold onto an uptrend in the wake of the Bank of Canada’s (BOC) interest rate hike. As doubts remain over the outlook of the domestic economy investors have seen limited reason to favour CAD over its rivals, especially as trade worries persist. A weaker-than-expected new housing price index also dented the appeal of the Canadian Dollar.

However, a rebound in the latest existing home sales data may offer CAD exchange rates a rallying point heading into the weekend.

New Zealand Dollar

A modest uptick in June’s food price index offered support to the New Zealand Dollar, suggesting that domestic inflationary pressure is stronger than previously thought. Although price pressures remain limited the mood towards the ‘Kiwi’ still improved, especially as USD exchange rates returned to a weaker footing. While global trade worries remain this was not enough to prevent NZD exchange rates pushing higher on Thursday.

An uptick in the latest New Zealand manufacturing PMI might encourage further gains for the New Zealand Dollar.

Data Released

July 13th 08:30 NZD Manufacturing PMI (JUN) 
July 13th 16:00 EUR German Wholesale Price Index (YoY) (JUN) 
July 13th 23:00 CAD Existing Home Sales (MoM) (JUN) 1.5%
July 14th 00:00 USD University of Michigan Sentiment Index (JUL P) 98.0

Post by TorFX

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