Euro Exchange Rates Knocked Off Bullish Run by Lower Inflation

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Headlines

  • Unemployment Rate Dip Limited AUD Downside – Confidence in Australian Dollar remains somewhat muted
  • Better-Than-Expected UK Retail Sales Figure Boosted Pound – GBP exchange rates recovered ground in spite of bearish outlook
  • US Dollar Faltered on Surprise Increase in Jobless Claims – Downside limited by persistent investor optimism
  • Eurozone Inflation Slowing Confirmed – Euro dipped as hopes of ECB hawkishness remain slim

Australian Dollar

Encouragingly, the Australian unemployment rate showed a surprise dip from 5.5% to 5.4% in October. This offered the Australian Dollar a boost, although the positive impact of the data was somewhat muted. As this was coupled with a decline in the participation rate the data did not paint the most optimistic picture of the domestic labour market, limiting any AUD exchange rate gains. All in all, the Reserve Bank of Australia (RBA) looks set to remain on hold for the foreseeable future.

The ‘Aussie’ could see its gains reversed today in the absence of any major domestic data releases.

Sterling

Although October’s UK retail sales data was a little mixed this failed to prevent the Pound from rallying again and trending higher across the board. Investors were relieved to find that sales including auto fuel had picked up further than forecast on the month, rising 0.3%. However, this was matched by a contraction in sales on the year as consumers continued to rein in their spending in response to the ongoing wage squeeze.

Political jitters are expected to keep a lid on GBP exchange rates heading into the weekend, though.

Euro

As the finalised Eurozone consumer price index confirmed that inflation had indeed dipped to 1.4% on the year this took some of the shine off EUR exchange rates. Naturally this disappointing showing underlines the likelihood of the European Central Bank (ECB) leaving monetary policy unchanged for the foreseeable future, maintaining a neutral to dovish outlook. With inflationary pressure unlikely to strengthen as policymakers would like in the near term the appeal of the single currency diminished.

If ECB President Mario Draghi continues to express dovishness at his latest appearance in Frankfurt this evening the Euro looks set to come under further pressure.

US Dollar

An unexpected uptick in continuing jobless claims dented the US Dollar, with the latest raft of US data proving largely unimpressive. As November’s Philadelphia Fed business outlook index slumped sharply from 27.9 to 22.7 this undermined optimism in the future strength of the US economy. Even so, as industrial and manufacturing production continued to run at a solid pace the softening of the ‘Greenback’ was still limited.

Tonight’s housing market data could further erode the appeal of the US Dollar, however, if building permits and housing starts figures fail to rebound on the month.

Canadian Dollar

The mood towards the ‘Loonie’ picked back up overnight thanks to September’s Canadian manufacturing sales data. While markets had anticipated a contraction on the month the figure instead showed healthy growth of 0.5%. This encouraged greater confidence in the underlying health of the Canadian economy, even though worries over the renegotiation of the North American Free Trade Agreement (NAFTA) continue to hang over the domestic outlook.

Volatility could be in store for CAD exchange rates this evening if Canadian inflation dips in line with forecasts.

New Zealand Dollar

The ANZ consumer confidence index continued to decline in November, falling -2.1% on the month as optimism faded further. As a result, the New Zealand Dollar remained on a weaker footing against its rivals for another day. Investors still see little reason to buy into the ‘Kiwi’ at this stage, with politics still casting a significant headwind.

With the New Zealand manufacturing PMI forecast to have slowed slightly on the month this could add to the bearishness of NZD exchange rates this morning. 

Data Released

November 17th 07:30 NZD Manufacturing PMI (OCT) 56.9
November 17th 18:30 EUR ECB President Mario Draghi Speaks
November 17th 23:30 CAD Consumer Price Index (YoY) (OCT) 1.4%
November 17th 23:30 USD Housing Starts (OCT) 5.6%
November 17th 23:30 USD Building Permits (OCT) 2.0%

Post by TorFX

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