Australian Dollar Softens Ahead of Key Employment Data

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Headlines

  • AUD Rates Shrugged Off Home Loan Rebound – Jitters mount ahead of labour market data
  • Cautious ECB Message Dented Euro – Markets unimpressed by falling odds of return to a tightening bias
  • Canadian Dollar Slumped Despite BOC Rate Hike – Policymakers expressed concern over future of NAFTA and economic outlook
  • Pound Capitalised on BoE Policymaker Optimism – Odds still point towards more gradual pace of monetary tightening

Australian Dollar

A sharp rebound in Australian home loans failed to encourage particular demand for the ‘Aussie’ yesterday, even as the measure jumped 2.1% on the month in November. While the Westpac consumer confidence index also pointed towards greater optimism within the domestic economy the mood towards the Australian Dollar soured. AUD exchange rates struggled to find any real upside potential given their recent bullishness, especially as the US Dollar continued to recover ground.

Some additional gains could be in store today, however, if the latest raft of labour market data proves encouraging.

Sterling

Comments from Bank of England (BoE) policymaker Michael Saunders offered support to the Pound, encouraging GBP exchange rates to rally overnight. Markets welcomed Saunders’ positive outlook on wage growth, which he believes will pick up significantly over the coming months. Although the policymaker did stress that the pace of any interest rate increase is still likely to be gradual and limited this was enough to boost Sterling against the majors for the time being.

With a contraction forecast for the latest RICS house price balance index the Pound looks vulnerable to the downside today.

Euro

The more cautious tone of the latest commentary from European Central Bank (ECB) policymakers encouraged further selling of the single currency. ECB vice president Vitor Constancio was quite clear that he expects monetary policy to remain ‘very accommodating for a long time’, dampening speculation that a return to a hawkish bias could be on the cards for the central bank. Confirmation that Eurozone inflation had eased slightly in December added to the bearishness of the Euro.

If policymakers continue to talk down the likelihood of any imminent shift towards hawkishness EUR exchange rates are likely to remain under pressure.

US Dollar

December’s US industrial and manufacturing production figures proved somewhat mixed in nature. However, as industrial output surprised firmly to the upside, rising 0.9% on the month, the US Dollar continued to trend higher overnight. Investors were also encouraged by an improvement in the corresponding capacity utilisation data, which suggests that the underlying health of the US economy was relatively robust at the end of 2017.

While the Philadelphia Fed business outlook index is expected to show a slight dip in January the downside potential of the US Dollar may remain limited in the near term, as it recovers from its bearish run.

Canadian Dollar

Although the Bank of Canada (BOC) raised interest rates at its January policy meeting, as anticipated, the Canadian Dollar returned to a downtrend. The content of the meeting minutes spurred a sharp slump for CAD exchange rates, with policymakers expressing particular concern over the uncertain future of NAFTA. Fears that the collapse of the trade agreement could have a severe negative impact on the Canadian economy look likely to limit the scope for further BOC tightening in the months ahead.

Confidence in the Canadian Dollar is unlikely to particularly recover today, with fresh domestic data lacking.

New Zealand Dollar

Domestic data did not offer much cause for confidence on Wednesday, with both the ANZ commodity price index and truckometer showing a marked contraction on the month. This suggests that price pressures within the New Zealand economy are still failing to build, raising the risk of the Reserve Bank of New Zealand (RBNZ) adopting a more dovish policy outlook. Even so, the New Zealand Dollar was still able to hold onto some traction against softer rivals such as the Euro.

Market reaction to the latest Chinese gross domestic product data may prompt some additional volatility for NZD exchange rates this afternoon.

Data Released

January 18th 10:01 GBP RICS House Price Balance (DEC) -1.0%
January 18th 10:30 AUD Unemployment Rate (DEC) 5.4%
January 18th 23:30 USD Philadelphia Fed Business Outlook (JAN) 24

Post by TorFX

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