Australian Dollar Softens in spite of RBA Steadiness

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  • Australian Dollar Struggles to Capitalise on Neutral RBA Policy Announcement – RBA looks set to leave interest rates on hold for longer
  • Increasing Risk of No-Deal Brexit Weighs on Pound – MPs fail to reach agreement on path forward
  • Canadian Dollar Strengthens on Positive BOC Commentary – CAD exchange vulnerable ahead of US oil inventories data
  • Decline in US Durable Goods Orders Dents US Dollar Demand – Confidence in US economic outlook diminishes

Signs of RBA Optimism Unable to Shore up Australian Dollar

The Reserve Bank of Australia (RBA) failed to encourage demand for the Australian Dollar yesterday even as it failed to adopt a dovish tone on interest rates. Although policymakers maintained a more neutral outlook this was not enough to keep AUD exchange rates on a positive footing. Investors were instead discouraged by a downgrade to the central bank’s inflation expectations, which suggests that interest rates are unlikely to rise in the foreseeable future.

If the Australian trade surplus narrows as forecast this morning the mood towards the Australian Dollar could sour further.

Pound Trends Lower on Rising Odds of No-Deal Brexit

Parliament’s continued failure to reach an agreement on Brexit saw the Pound remain under pressure last night. Officials warned that the risk of the UK leaving the EU without a deal is increasing by the day, giving investors fresh incentive to sell out of the Pound. March’s UK construction PMI added to the bearish mood, with the sector contracting for a second consecutive month as Brexit uncertainty continued to weigh on the economy.

Further weakness could be in store for GBP exchange rates this evening if the corresponding services PMI also shows a loss of momentum on the month.

Producer Price Index Uptick Fails to Boost Euro

A smaller-than-expected uptick in February’s Eurozone producer price index offered the Euro limited support. This uptick still suggests that inflationary pressure within the currency union is building, in spite of March’s disappointing consumer price index reading. Even so, EUR exchange rates came under pressure overnight as the general sense of market risk appetite picked up, encouraging investors to favour higher-yielding assets over the single currency.

Any slowdown in February’s Eurozone retail sales figures may drive further Euro selling pressure tonight.

Sharp Decline in Durable Goods Orders Drives US Dollar Weakness

As US durable goods orders saw a sharp -1.6% contraction on the month in February this left USD exchange rates on a weaker footing. This drop suggests that US consumers are taking a less optimistic outlook, something which could weigh on the wider economy in the months ahead. Coupled with the stronger performance of global stock markets this prompted the US Dollar to soften overnight.

If the latest ISM non-manufacturing composite index eases as forecast this could see USD exchange rates shedding further ground as worries over the economic outlook grow.

Signs of BOC Optimism Shore up Canadian Dollar

Comments from Bank of Canada (BOC) Governor Stephen Poloz saw the Canadian Dollar gaining ground yesterday. As the policymaker adopted a modestly hawkish tone, expressing confidence that the current economic slowdown is temporary in nature, this gave CAD exchange rates a boost. A solid rally in oil prices offered additional support to the Canadian Dollar, encouraged by an improvement in market risk appetite.

Any fresh uptick in US crude oil stockpiles tonight, though, could prompt CAD exchange rates to return to a downtrend.

Neutral RBA Commentary Leaves New Zealand Dollar Under Pressure

The mood towards the New Zealand Dollar generally soured yesterday in the wake of the RBA’s neutral policy message. With the RBA looking set to leave interest rates on hold in the near term the prospect of a likely Reserve Bank of New Zealand (RBNZ) rate cut weighed heavier on NZD exchange rates. Even a weaker US Dollar was not enough to shore up the New Zealand Dollar at this stage.

A strong showing from the ANZ commodity price index may offer NZD exchange rates a rallying point this morning, however.

Data Releases

April 3rd 11:00    NZD    ANZ Commodity Price Index (MAR)    
April 3rd 11:30    AUD    Trade Balance (FEB)    3.8 billion
April 3rd 19:30    GBP    Services PMI (MAR)    51.0
April 3rd 20:00    EUR    Eurozone Retail Sales (YoY) (FEB)    1.5%
April 4th 01:00    USD    ISM Non-Manufacturing Composite Index (MAR)    58.0

Post by TorFX

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