Confirmation of Weaker Eurozone Inflation Weighed Down Euro

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Headlines

  • Departure of Scandal-Hit Deputy PM Did Little for AUD Exchange Rates – Risk aversion limited Australian Dollar demand
  • Euro Under Pressure After Confirmed Dip in Eurozone Inflation – Signs point towards more cautious ECB outlook
  • Surprise Rebound in Inflation Boosted Canadian Dollar – Stronger showing eased concerns over weak domestic outlook
  • Higher-Than-Forecast Retail Sales Failed to Shore up NZD – Markets remain sceptical of underlying economic health

Australian Dollar

While Deputy Prime Minister Barnaby Joyce announced his intent to resign this failed to offer any particular support to the Australian Dollar on Friday. There are still concerns over the impact that Joyce’s fall from grace will have on the wider Turnbull government, given its slim majority. The prospect of further political uncertainty left demand for AUD exchange rates lacking, with investors in a generally bearish mood ahead of the weekend.

With fresh domestic data thin on the ground at the start of the week the Australian Dollar may struggle to find any significant gains today.

Sterling

While Bank of England (BoE) deputy governor David Ramsden took a rather less hawkish view on monetary policy in his latest comments, issuing a fresh warning over productivity, this ultimately failed to dampen the mood of Sterling. As the majority of BoE policymakers look a little more optimistic markets remain hopeful that the Bank could be on track to raise interest rates again in the near future.

If the BBA loans for house purchase figure shows a deterioration on the month, however, this could see GBP exchange rates returning to a weaker footing.

Euro

Although fourth quarter German exports unexpectedly leap 2.7% on the quarter this was not enough to shore up EUR exchange rates. Focus instead fell on the finalised Eurozone consumer price index for January, which confirmed that inflation had dipped from 1.4% to 1.3% on the year. As this is likely to give the European Central Bank (ECB) further incentive to sit on its hands for longer the appeal of the Euro naturally diminished.

Even so, EUR exchange rates are likely to remain under pressure today as markets begin to brace for February’s raft of provisional Eurozone inflation data.

US Dollar

The US Dollar continued to lose steam during Friday’s European session, struggling to capitalise on the increased odds of more aggressive Federal Reserve monetary tightening in the months ahead. Concerns over the outlook of the US economy remain, given the Trump administration’s approach to trade and the ultimate impact of its tax reforms. This is likely to keep USD exchange rates under some degree of pressure in the coming days, limiting any upside potential.

Overnight, however, the US Dollar could make some fresh gains if the latest new home sales and manufacturing data prove encouraging.

Canadian Dollar

CAD exchange rates reacted with relief to news that the Canadian consumer price index had bettered forecast in January. Investors were pleasantly surprised to find that inflation had rebounded on the month, reversing December’s -0.4% contraction with an uptick of 0.7%. As this is likely to ease the minds of Bank of Canada (BOC) policymakers, at least in the short term, the Canadian Dollar pushed higher against the majority of the majors in response.

However, with oil prices still under pressure the commodity-correlated Canadian Dollar may struggle to maintain any particular bullishness for long.

New Zealand Dollar

Although the fourth quarter New Zealand retail sales data proved stronger than forecast the appeal of the New Zealand Dollar remained limited on Friday. While the 1.7% uptick in sales on the quarter bodes well for the domestic economy this is unlikely to be enough to alter the outlook of the Reserve Bank of New Zealand (RBNZ). As a result, with market risk appetite limited, NZD exchange rates trended lower.

Unless markets return to a more bullish outlook today the New Zealand Dollar is likely to lack much traction against its rivals.

Data Released

February 26th 19:30 GBP BBA Loans for House Purchase (JAN) 1.3%
February 27th 01:00 USD New Home Sales (JAN) 647,000
February 27th 01:30 USD Dallas Fed Manufacturing Activity (FEB) 30

Post by TorFX

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