Australian Dollar Softens on Neutral RBA Policy Outlook

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 Headlines

  • Australian Dollar Falters as RBA Minutes Take Dovish Tone – Odds of 2018 interest rate hike continue to diminish
  • Accelerating UK Wage Growth Boosts Pound – Weakening business optimism may weigh on GBP exchange rates
  • Negative German Economic Sentiment Limits Euro Demand – Soft consumer confidence to add to single currency bearishness
  • US Dollar Stumbles as Fed Policymaker Signals Caution – Stronger housing index fails to shore up USD


Neutral RBA Minutes Leave Australian Dollar Underwhelmed

February’s Reserve Bank of Australia (RBA) meeting minutes failed to offer the Australian Dollar support. Although policymakers still sounded some optimistic notes the odds of an interest rate hike continued to diminish on the back of the minutes. With the RBA showing increasing concern over the health of the Australian housing market the case for tighter monetary policy appears to have faded.

Another negative reading from the latest Westpac leading index could weigh heavily on AUD exchange rates this morning.

UK Wage Acceleration Boosts Pound

UK average weekly earnings data continued to show a solid pace of acceleration in the three months to December. GBP exchange rates found a fresh boost on the back of the data, with wage growth extending its lead over inflation. This suggests that household finances could see a further improvement in the first quarter, boosting the odds of increased consumer spending. The continued tightness of the UK labour market also gave investors cause for confidence.

Even so, if the CBI industrial trends orders data shows a fresh deterioration in business sentiment this could weigh heavily on GBP exchange rates today.

Euro Weakens as German Economic Sentiment Remains Negative

A modest improvement in February’s German ZEW economic sentiment survey failed to encourage the Euro. As the index remained firmly in negative territory confidence in the outlook of the Eurozone’s powerhouse economy still looks limited, suggesting a further slowdown in growth. A surprise contraction in Eurozone construction output on the month in December put additional pressure on EUR exchange rates, meanwhile, as sentiment continued to sour.

With tonight’s Eurozone consumer confidence index forecast to remain negative the potential for a Euro recovery appears slim.

Fed Commentary Limits US Dollar Upside

An uptick in the NAHB housing market index for February suggests greater resilience within the US economy, with the index improving from 58 to 62. However, this uptick was not enough to give USD exchange rates a boost last night as focus instead fell on Federal Reserve commentary. As Cleveland Fed President Loretta Mester indicated that monetary policy ‘does not appear to be far behind or far ahead of the curve’ this limited the appeal of the US Dollar, with the odds of an interest rate hike falling.

Ahead of the release of the Federal Reserve’s latest meeting minutes tomorrow the US Dollar may struggle to find support.

Canadian Dollar Falters as Risk Appetite Fades

As the initial bout of market risk optimism and trade hopes faded this left the Canadian Dollar on a weaker footing against its rivals. Worries remain over the potential for US-Chinese trade talks to yield a breakthrough, leaving the risk-sensitive Canadian Dollar exposed to market jitters. With oil prices in decline once again CAD exchange rates were quick to give up their recent gains.

Unless there are signs of US oil production easing the appeal of the Canadian Dollar may remain muted today.

Rising Dairy Prices Fail to Shore up New Zealand Dollar

NZD exchange rates remained under pressure in spite of a modest increase in prices at the latest Global Dairy Trade auction yesterday. Even though dairy prices continued to push higher, reversing the decline seen in 2018, this failed to give the commodity-correlated New Zealand Dollar any boost. With market risk appetite generally deteriorating NZD exchange rates softened across the board.

Any improvement in the fourth quarter New Zealand producer price index data could see the New Zealand Dollar rally, however.


Data Releases

February 20th 08:45    NZD    Producer Price Index (QoQ) (4Q)    
February 20th 10:30    AUD    Westpac Leading Index (MoM) (JAN)    
February 20th 22:00    GBP    CBI Industrial Trends Orders (FEB)    -3
February 21st  02:00    USD    Eurozone Consumer Confidence Index (FEB)    -7.7

Post by TorFX

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