Doubts Over Merkel’s Future Prompt EUR Exchange Rate Slump

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Headlines

  • Dovish RBA Minutes Forecast to Extend AUD Losses – Weakening policymaker confidence likely to diminish odds of policy tightening
  • German Coalition Talks Collapsed – Euro dented as Eurozone’s major economy thrown into fresh turmoil
  • Contracting NZ Food Prices Point Towards Weaker Inflation – Odds of RBNZ hawkishness diminish further
  • Sterling Benefits from Brexit Speculation – Investors continue to hope for imminent breakthrough in talks

Australian Dollar

Confidence in the ‘Aussie’ remained decidedly lacking at the start of the week, with investors still taking a rather bearish view of the Australian economy. Hopes are not particularly high for the Reserve Bank of Australia’s (RBA) November meeting minutes, due for release this morning. As policymakers look set to maintain a dovish policy outlook for the foreseeable future the mood towards the Australian Dollar is likely to deteriorate further today.

However, if the RBA adopts a more upbeat stance this could offer AUD exchange rates a rallying point in the short term.

Sterling

Rumours that Theresa May could be prepared to up her offer to settle the UK’s so-called divorce bill helped to buoy Sterling. While a significant degree of uncertainty still hangs over Brexit negotiations, especially given the latest turmoil in Germany, this failed to hamper the strength of GBP exchange rates overnight. Building anticipation for Chancellor Philip Hammond’s Budget announcement also supported the Pound, even though the prospect of any significant economic stimulus is rather limited.

Any narrowing of the public sector net finance figure may bolster the appeal of Sterling further, offering the Chancellor greater room for manoeuver.

Euro

Markets were dismayed by news that German coalition talks had broken down, markedly raising the risk of Chancellor Angela Merkel being ousted from office. This created a renewed sense of political uncertainty within the Eurozone, with Germany now looking likely to be preoccupied with domestic matters for some months to come. Naturally this reduces the likelihood of further integration being achieved in the near future, denting the appeal of the Euro.

Even so, the impact of political worries may prove to be relatively short-lived in the near term as the underlying picture for the Eurozone economy remains positive.

US Dollar

A sharp rebound in October’s leading index spurred the ‘Greenback’ to trend higher across the board during Monday’s American session. As the measure leapt from -0.2% to 1.2% this offered fresh evidence of the relative strength of the world’s largest economy. With the Federal Reserve still looking on track to raise interest rates once again in December there was little reason not to favour the US Dollar, especially as market risk appetite remained muted.

Another positive showing from tonight’s existing home sales data could see USD exchange rates extending their gains even further.

Canadian Dollar

With oil prices continuing to retreat the Canadian Dollar remained under pressure at the start of the week. Worries over likely developments in the renegotiation of NAFTA also weighed on the ‘Loonie’, with changes to the trade deal having the potential to harm Canadian economic growth. All in all, CAD exchange rates lacked any meaningful support, given the likelihood of the Bank of Canada (BOC) leaving interest rates on hold for some time to come.

September’s wholesale trade sales data may limit the weakness of the Canadian Dollar, though, if volumes hold relatively steady on the month.

New Zealand Dollar

It was another lacklustre performance for the New Zealand Dollar on Monday, with investors failing to take encouragement from the latest domestic data. As October’s food prices index contracted by a sharp -1.1% this suggested that inflationary pressure within the New Zealand economy is still lacking. Coupled with a dip in the latest services PMI this left the ‘Kiwi’ on its bearish footing.

Unless credit card spending data points towards increased confidence amongst consumers demand for the New Zealand Dollar looks unlikely to pick up today.

 Data Released

November 21st 10:30 AUD Reserve Bank of Australia November Meeting Minutes
November 21st 12:00 NZD Credit Card Spending (YoY) (OCT)
November 21st 19:30 GBP Public Sector Net Borrowing (OCT) 6.6 billion
November 21st 23:30 CAD Wholesale Trade Sales (MoM) (SEP) 0.4%
November 22nd 01:00 USD Existing Home Sales (MoM) (OCT) 0.2%

Post by TorFX

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