Bullish US Dollar Continues to Limit Market Risk Appetite

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Headlines

  • Limited Risk Appetite Weighed on Australian Dollar Rates – Stronger import and export price indexes could boost AUD
  • Rising French Confidence Failed to Shore up Euro – Single currency sluggish ahead of ECB meeting
  • Higher US Bond Yields Supported US Dollar Bullishness – Weak durable goods orders may dent USD exchange rates
  • Canadian Dollar Recovered Ground on Falling US Crude Inventories – Oil market optimism continues to benefit CAD

Australian Dollar

Demand for the Australian Dollar remained largely limited yesterday, with markets remaining in a more risk averse mood. The relative strength of the US Dollar continued to weigh heavily on the commodity-correlated ‘Aussie’, even after a disappointing MBA mortgage applications figure. With the Reserve Bank of Australia (RBA) looking set to leave interest rates on hold for some time to come in the wake of the disappointing inflation data investors saw little reason to favour the Australian Dollar.

Today’s first quarter import and export price index data could boost AUD exchange rates, providing price pressures show fresh signs of improvement.

Sterling

With fresh domestic data lacking the Pound struggled to find any particular traction against its rivals. Confidence in the underlying health of the UK economy remains generally muted at this juncture, with Brexit-based uncertainty still looming large in the minds of investors. In the absence of any signs that the UK and EU are moving closer to an agreement on the subject of the Irish border support for GBP exchange rates could prove limited over the coming days.

As forecasts point towards a slowdown in the latest BBA loans for house purchase data the mood towards the Pound is unlikely to improve, with a slowing housing market not boding well for the wider economy.

Euro

A surprise uptick in April’s French consumer confidence index failed to give EUR exchange rates any real boost during Wednesday’s European session. Investors remain concerned by weakening growth and confidence within the wider Eurozone, with the currency union showing signs of having lost momentum since the start of 2017. Even so, the Euro was able to make some gains against its risk-sensitive rivals, benefitting from the deterioration in market risk appetite.

Confidence in the Euro is not expected to see any particular improvement ahead of this evening’s European Central Bank (ECB) policy meeting, with policymakers forecast to maintain a dovish bias.

US Dollar

USD exchange rates picked up sharply overnight, shrugging off a less-than-impressive MBA mortgage applications figure. Although applications contracted -0.2% on the week, suggesting a slight loss of momentum within the US housing market, this was not enough to knock the US Dollar off its bullish footing. After the US Treasury 10-year note broke through psychological resistance to hit 3% for the first time in four years investors have viewed the US economy with greater confidence.

However, the US Dollar may lose some of its recent gains if tonight’s durable goods orders figure disappoints forecast.

Canadian Dollar

Even though US crude inventories saw a larger drawdown than forecast on the week this was not enough to prevent oil prices easing somewhat. However, Canadian Dollar exchange rates were still able to recover some ground overnight as investors greeted this latest sign of the global oversupply glut easing. A stronger US Dollar was not enough to keep CAD on a weaker footing.

Nevertheless, the more dovish policy outlook of the Bank of Canada (BOC) is still expected to limit the upside potential of the Canadian Dollar in the coming days.

New Zealand Dollar

In the absence of any particular sense of market risk appetite the New Zealand Dollar came under additional pressure. With the policy divergence between the Reserve Bank of New Zealand (RBNZ) and the Federal Reserve looking set to widen further over the coming months NZD exchange rates are still biased to the downside.

Ahead of Friday’s New Zealand trade data the ‘Kiwi’ looks set to remain generally lacking in support, with forecasts pointing towards a rise in import volumes.

Data Released

April 26th 11:30 AUD Import Price Index (QoQ) (1Q) 1.2%
April 26th 11:30 AUD Export Price Index (QoQ) (1Q) 4.1%
April 26th 18:30 GBP BBA Loans for House Purchase (MAR) 37,000
April 26th 21:45 EUR European Central Bank Rate Decision 0.0%
April 26th 22:30 USD Durable Goods Orders (MAR P) 1.4%

Post by TorFX

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