Australian Dollar Remains Under Pressure From Fed Rate Hike Hopes

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Headlines

  • Improved Consumer Confidence Failed to Boost AUD Exchange Rates – Rise in private sector credit may offer rallying point
  • US Dollar Pushed Higher on Fed Chair Powell Comments – Prospect of policy continuity encourages investor optimism
  • NZD Exchange Rates Slumped as Trade Deficit Widened Sharply – Markets disappointed as import volumes outpace exports
  • German Consumer Price Index Fell Short of Forecast – Euro trends lower in anticipation of weaker Eurozone inflation data

Australian Dollar

Confidence in the Australian Dollar was rather limited on Tuesday, even after a moderate uptick in consumer sentiment. Although the ANZ Roy Morgan weekly consumer confidence index strengthened from 115.3 to 117.9 this was not enough to shore up AUD exchange rates. Instead the appeal of the antipodean currency remained under pressure thanks to speculation surrounding the policy outlook of the Federal Reserve.

If January’s private sector credit figures show an increase this could offer the Australian Dollar a rallying point, boosting the domestic outlook.

Sterling

Jitters over Brexit continued to weigh down the Pound yesterday, with investors still concerned by the prospect of the UK departing the customs union when it leaves the EU. As the odds of a softer form of Brexit appear to remain somewhat limited there was little particular incentive to favour Sterling at this juncture. With the prospect of another Bank of England (BoE) interest rate hike still up in the air GBP exchange rates look vulnerable to downside pressure.

With the GfK consumer confidence index expected to show another dip in February the appeal of the Pound could diminish further today.

Euro

Markets were not impressed to find that the German consumer price index had fallen short of forecast on the year in February. As inflation clocked in at 1.4%, down from 1.6%, this naturally exacerbated concerns over the likelihood of the European Central Bank (ECB) returning to a monetary tightening bias in the months ahead. Weaker inflationary pressure within the Eurozone’s powerhouse economy does not bode well for the outlook of the wider currency union.

A similarly disappointing showing from the corresponding Eurozone consumer price index data could see EUR exchange rates ceding further ground.

US Dollar

Although January’s advance goods trade balance and durable goods orders data proved weaker than anticipated this failed to weigh on the US Dollar overnight. Focus instead fell on commentary from new Federal Reserve Chair Jerome Powell, who maintained a rather measured tone on monetary policy. As this was seen to be fairly consistent with the position of previous Chair Janet Yellen, supporting the prospect of further interest rate hikes, this gave USD exchange rates a solid boost.

Even so, a weaker result from the latest annualised gross domestic product figure may put the US Dollar under some degree of pressure tonight.

Canadian Dollar

Demand for the Canadian Dollar was rather limited last night, with oil prices remaining under pressure. As signs continue to point towards increasing US crude production support for the oil market has eroded further, squeezing the commodity-correlated CAD. Jitters ahead of the latest federal Budget also weighed down CAD exchange rates overnight, in the absence of any particular sense of market risk appetite.

However, if January’s industrial product price data shows a rebound on the month the Canadian Dollar may be able to find a rallying point in the near term.

New Zealand Dollar

As New Zealand recorded its largest January trade deficit since 2007, driven by a sharp increase in imports, NZD exchange rates came under renewed pressure. Investors were discouraged to see this latest sign of vulnerability within the domestic economy, especially in the wake of December’s solid trade surplus. With growth in exports unable to keep pace with imports confidence in the economic outlook naturally declined, leaving the New Zealand Dollar on a generally weaker footing.

Unless the ANZ activity outlook for February proves positive the mood towards the ‘Kiwi’ is likely to remain somewhat bearish.

Data Released

February 28th 10:00 NZD ANZ Activity Outlook (FEB)
February 28th 10:01 GBP GfK Consumer Confidence (FEB) -10
February 28th 10:30 AUD Private Sector Credit (YoY) (JAN) 5.0%
February 28th 20:00 EUR Eurozone Consumer Price Index (YoY) (FEB) 1.2%
February 28th 23:30 CAD Industrial Product Price (MoM) (JAN)
February 28th 23:30 USD Gross Domestic Product Annualised (QoQ) (4Q) 2.5%

Post by TorFX

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