Australian Dollar Remains on Back Foot as RBA Statement Proves Dovish

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  • RBA Statement on Monetary Policy Encourages Fresh Australian Dollar Selling – Central bank maintains cautious outlook    
  • German Export Rebound Fails to Strengthen Euro – Italian and French industrial production weakness added to economic worries
  • Federal Reserve Continues to Show Signs of Dovishness – US Dollar benefits from latest market jitters over US-China trade spat
  • Canadian Dollar Pushes Higher in spite of Unemployment Rate Increase – Canadian labour market shows signs of tightening

Cautious RBA Message Dents Australian Dollar

AUD exchange rates remained on a weaker footing as the Reserve Bank of Australia’s (RBA) latest Statement on Monetary Policy echoed the dovish tone of Governor Philip Lowe’s recent comments. With the RBA looking set to take a more cautious outlook in the months ahead the appeal of the Australian Dollar was limited, as the odds of an interest rate hike diminished further. Renewed market anxiety over the US-China trade spat put additional pressure on the Australian Dollar ahead of the weekend.

As long as markets maintain a risk averse outlook AUD exchange rates could struggle to return to an uptrend.

Brexit Uncertainty Limits Pound Demand

Speculation over Brexit continued to drive the movement of GBP exchange rates on Friday as the issue of the Irish border showed no signs of coming to a resolution. Discussions between Theresa May and EU leaders failed to yield any significant breakthrough even with the March deadline drawing ever closer. With confidence in the domestic outlook generally limited investors saw little incentive to favour the Pound at this stage.

However, if the fourth quarter UK gross domestic product data shows that growth picked up at the end of 2018 this could boost GBP exchange rates.

Euro Struggles to Capitalise on Strong Rebound in German Exports

German export volumes bettered forecasts in December, surging 1.5% on the month to improve confidence in the underlying health of Eurozone’s powerhouse economy. Even so, the Euro struggled to push higher against its rivals thanks to the underwhelming nature of December’s French and Italian industrial production data. Another sharp contraction in Italian production exacerbated worries over the economy’s recent slip into recession, limiting the appeal of the single currency.

With no fresh Eurozone data set for release today EUR exchange rates may remain on the back foot.

Federal Reserve Comments Limit US Dollar Upside

Federal Reserve policymakers continued to talk down the prospect of an interest rate hike, limiting the upside potential of the US Dollar. With the US central bank looking set to maintain a neutral policy stance in the near future support for USD exchange rates diminished. However, as the US and China are unlikely to hold fresh trade talks before the US is scheduled to increase tariffs on Chinese products a general increase in safe-haven demand helped to boost the US Dollar.

As long as US-China trade tensions continue to weigh on the global economy this should limit any potential US Dollar losses.

Canadian Dollar Shakes Off Higher Unemployment Rate

Even though the Canadian unemployment rate rose to 5.8% in January this failed to weigh down CAD exchange rates during Friday’s European session. This uptick was driven by a surprise increase in the corresponding participation rate, which showed that a larger number of Canadians are now economically active. As a result, with wage growth also improving, the appeal of the Canadian Dollar improved in the wake of the data.

Any narrowing of the trade deficit could offer a fresh boost to CAD exchange rates tonight.

New Zealand Dollar Muted Thanks to Risk Aversion

With market risk appetite limited by the prospect of increased US tariffs on Chinese products demand for the New Zealand Dollar failed to improve. However, as the disappointing nature of the recent New Zealand jobs data started to fade this helped NZD exchange rates to find some traction ahead of the weekend.

Without the support of domestic data, though, the New Zealand Dollar remains vulnerable to losses in the near term.

Data Releases

February 11th 20:30    GBP    Gross Domestic Product (QoQ) (4Q)    0.6%
February 12th 00:30    CAD    Trade Balance (DEC)    -1.7 billion

Post by TorFX

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