Drop in Business Conditions Index Drags Australian Dollar Down

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  • Weak Business Conditions Index Weighs on Australian Dollar – Softening inflation pressure to add to bearishness today
  • Euro Falters as Signs Point Towards Easing Eurozone Inflation – Odds of ECB interest rate hike continue to diminish
  • Pound Loses Ground as Brexit Speculation Intensifies – Net consumer credit data in focus
  • New Zealand Dollar Fails to Capitalise on Trade Surplus – Investors disappointed as export volumes fall short of forecast

Australian Dollar Trends Lower on Underwhelming Business Conditions Index

The mood towards the Australian Dollar soured further yesterday as the NAB business conditions index showed a sharp slowdown in December. As the index slumped from 11 to 2 this suggests that the Australian economy is coming under increased pressure. Although the headline confidence index held steady on the month this was not enough to prevent AUD exchange rates trending lower in the wake of the data.

Further weakness could be in store if the fourth quarter consumer price index eases on the year as forecast this morning.

Pound Muted Amid Brexit Speculation

GBP exchange rates struggled to find much momentum as markets braced for the latest parliamentary debate on Brexit. Speculation over the fate of the various proposed amendments to Theresa May’s plan saw the Pound come under pressure yesterday. While the odds of a no-deal Brexit remained muted this optimism could only offer limited support to the Pound ahead of the crucial votes.

If December’s net consumer credit data points towards greater confidence among UK households, however, this could give GBP exchange rates a solid boost tonight.

Signs of Weaker Eurozone Inflation Keep Euro Under Pressure

Investors saw little cause for confidence in the Euro after the five-year breakeven forward indicated that inflation is likely to remain muted for longer. As the measure eased to 1.5% this suggests that inflationary pressure could remain below the European Central Bank’s (ECB) 2% target for some time to come. Given the already cautious outlook of ECB policymakers this left EUR exchange rates biased to the downside.

Tonight’s German consumer price index data could see the single currency extend its losses further if inflation continues to show signs of easing.

Sharp Dip in Consumer Confidence Drags on US Dollar

January’s US consumer confidence index fell short of expectations, slumping from 126.6 to 120.2 on the month. This sharp decline reflects the negative impact of the recent government shutdown, highlighting the likely detrimental effect the disruption could have on various economic indicators. USD exchange rates shed some ground in the wake of the data, even though market risk aversion still offered support to the safe-haven currency.

Any slowdown in the fourth quarter annualised US gross domestic product could weigh heavily on the US Dollar overnight.

Venezuela Oil Sanctions Shore up Canadian Dollar

The Canadian Dollar returned to a positive footing during Tuesday’s European session as oil prices surged higher. News that the US has imposed fresh sanctions on Venezuela, in response to escalating political tensions, saw Brent crude climb more than 2% on the day. This improvement gave the commodity-correlated CAD a fresh boost, even as wider market worries over the health of the global economy persist.

Another weekly increase in US oil production, however, could still see the Canadian Dollar return to a downtrend.

Trade Surplus Fails to Boost New Zealand Dollar

Although the New Zealand trade balance returned to a state of surplus in December this was not enough to shore up NZD exchange rates. Investors failed to take encouragement from the improvement in trade conditions, reacting with disappointment to a lower-than-forecast export volumes figure. As worries over the outlook of the New Zealand economy remain this left NZD exchange rates exposed to selling pressure yesterday.

Unless market risk appetite picks up the New Zealand Dollar may struggle to find much support this morning.

Data Releases

January 30th 11:30    AUD    Consumer Price Index (YoY) (4Q)    1.7%
January 30th 20:30    GBP    Net Consumer Credit (DEC)    0.8 billion
January 31st 00:00    EUR    German Consumer Price Index (YoY) (JAN)    1.6%
January 31st 00:30    USD    Gross Domestic Product Annualised (QoQ) (4Q)    2.6%

Post by TorFX

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