BOC Rate Hike Hopes Push Canadian Dollar Higher

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Headlines

  • Australian Dollar Fails to Capitalise on Rising Consumer Confidence – Expectations build for Thursday’s unemployment data
  • CAD Exchange Rates Extend Gains Ahead of BOC Rate Decision – Fresh rate hike could see Canadian Dollar strengthen further
  • German Coalition Hopes in Jeopardy – Euro weakens after SPD branch votes against new coalition with CDU
  • US Dollar Recovers Ground After Bank Holiday – USD shrugs off disappointing manufacturing index

Australian Dollar

While the ANZ Roy Morgan weekly consumer confidence index strengthened further on Tuesday the mood towards the Australian Dollar turned a little more muted. Even though signs continue to point towards a more robust domestic outlook AUD exchange rates were weighed down by the resurgent strength of the US Dollar. With market risk appetite easing and anticipation starting to build for tomorrow’s employment data the appeal of the ‘Aussie’ was naturally limited.

Even so, a strong showing from the Westpac consumer confidence index could offer some measure of support to AUD exchange rates in the short term.

Sterling

Investors were not impressed to find that the headline UK consumer price index had eased from 3.1% to 3.0% in December, even though this was in line with forecasts. As anticipated, markets viewed this easing in inflationary pressure as reducing the odds of the Bank of England (BoE) raising interest rates again. With the BoE likely to feel less inclination to tighten monetary policy further now that inflation is moving back towards its target range the Pound weakened.

Commentary from BoE policymakers will be in increased focused over the coming days, with Sterling vulnerable to further weakness if sentiment proves dovish.

Euro

The optimism of EUR exchange rates faded in the wake of reports that the Berlin branch of the SPD had voted against opening coalition negotiations with Angela Merkel’s CDU. This raised the possibility of another possible coalition falling through, plunging the German political scene back into uncertainty. Disappointing German wholesale price index figures also weighed the Euro down, suggesting that inflationary pressure within the Eurozone’s powerhouse economy is still rather lacking.

Tonight’s finalised Eurozone consumer price index data is not likely to offer the Euro any particular support, unless the figure shows an upwards revision.

US Dollar

Even though the Empire manufacturing index for January failed to strengthen as forecast the US Dollar nevertheless returned to an uptrend overnight. As USD exchange rates have seen significant selling in recent days their downside potential was somewhat exhausted, encouraging investors to pile back into the cheaper US Dollar. The softening of the Euro offered an additional boost to the US Dollar, given the negative correlation between the pair.

With industrial production forecast to have picked up pace in December USD exchange rates could regain further ground tonight.

Canadian Dollar

With anticipation mounting for the Bank of Canada’s (BOC) latest monetary policy decision the Canadian Dollar returned to a stronger footing across the board. Although the impact of a 25bpt interest rate hike has already been largely priced into CAD exchange rates the mood of investors remained bullish. Falling oil prices failed to put any particular pressure on the Canadian Dollar, meanwhile, as confidence in the outlook of the commodity persists.

Jitters could still see the Canadian Dollar lose ground ahead of tonight’s rate decision, especially if doubts over the outcome increase.

New Zealand Dollar

NZD exchange rates continued to slump on Tuesday, with domestic retail card spending found to have slowed to just 0.5% in December. This naturally raised concerns over the health of the domestic economy and declining consumer confidence, putting additional pressure on the New Zealand Dollar. Fading market risk sentiment left the ‘Kiwi’ generally lacking in support.

If the latest ANZ truckometer points towards easing inflationary pressure this could see NZD exchange rates extend their downtrend further today.

 

Data Released

January 17th 07:00 NZD ANZ Truckometer (MoM) (DEC)
January 17th 09:30 AUD Westpac Consumer Confidence Index (JAN)
January 17th 10:30 AUD Home Loans (MoM) (NOV) 0.0%
January 17th 20:00 EUR Eurozone Consumer Price Index (YoY) (DEC F) 1.4%
January 18th 00:15 USD Industrial Production (MoM) (DEC) 0.4%
January 18th 01:00 CAD Bank of Canada Rate Decision 1.25%

Post by TorFX

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