Euro Plunges Even as ECB Halves Asset Purchase Scheme

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Headlines

  • RBA Pushes for More Timely Data Releases – Australian Dollar still vulnerable to signs of weaker inflationary outlook
  • Poor UK Sales Data Reversed Pound Bullishness – Signs continue to point towards softer underlying growth
  • Euro Slumped on Dovish Draghi Performance – ECB signalled intent to leave QE programme open-ended
  • NZ Trade Deficit Continued to Widen – New Zealand Dollar bearish as imports continue to outstrip exports

Australian Dollar

A smaller-than-expected contraction in the third quarter Australian export price index offered support to the ‘Aussie’. While this does not mitigate the negative implications of Wednesday’s poor inflation data the improvement was enough to prevent AUD exchange rates shedding further ground. Comments from Reserve Bank of Australia (RBA) deputy governor Guy Debelle also helped to shore up the antipodean currency, with the policymaker calling for a change in the way Australian economic data is released to accommodate more timely assessment of domestic conditions.

If the third quarter producer price index data underlines a softening in inflationary pressure, though, the Australian Dollar could return to a weaker footing today.

Sterling

Some of the wind went out of the Pound’s sails on Thursday as the Confederation of British Industry (CBI) retailing reported sales index unexpectedly slumped. Markets were shaken by the news that the index had plunged from 42 to -36 in October, the lowest reading seen since March 2009. Naturally this undermined confidence in the outlook of the UK economy, suggesting that the wage squeeze and weaker consumer spending could drag on growth in the fourth quarter.

With no further UK data set for release ahead of the weekend Sterling may struggle to find any rallying point.

Euro

It was no real surprise that the European Central Bank (ECB) opted to halve its asset purchase programme, making the first step towards monetary normalisation. However, as the ECB signalled that the programme remains open-ended, and that this decision does not represent a form of tapering, the mood towards the Euro soured significantly. Investors were not encouraged by President Mario Draghi’s distinctly dovish performance, especially as tensions over Catalonia continued to mount.

However, if the latest German import price index figures point towards rising inflationary pressure this could boost EUR exchange rates this afternoon.

US Dollar

Even though the advance goods trade deficit widened further than forecast in September this failed to particularly weigh on the bullish US Dollar. In part this was thanks to the weakness of the Euro, with the continued policy divergence of the ECB and the Federal Reserve offering encouragement to investors. Hopes that the Trump administration’s budget blueprint will find approval, paving the way for tax reforms, also kept USD exchange rates on a generally stronger footing.

Any downside disappointment from tonight’s annualised gross domestic product, however, could see the ‘Greenback’ reversing some of its recent gains.

Canadian Dollar

The negative impact of the Bank of Canada’s (BOC) more dovish tone did not last particularly long, with the Canadian Dollar recovering some degree of strength overnight. While the longer-term outlook for the ‘Loonie’ still appears distinctly bearish this was not enough to prevent a temporary rebound. Encouraging comments from oil producers offered support to CAD exchange rates, indicating that the OPEC-led production limiting agreement is likely to continue running for many months to come.

Even so, the Canadian Dollar remains vulnerable to the downside in the absence of any supportive domestic data.

New Zealand Dollar

As September’s raft of trade data proved somewhat mixed this did little to improve the appeal of the New Zealand Dollar. Disappointingly, the trade deficit was found to have widened further on the month from -900 million to -1143 million. This suggests that the domestic economy is still somewhat lacking in strength, keeping NZD exchange rates generally under pressure.

Political jitters are still likely to dominate the ‘Kiwi’ outlook in the near term, even as markets adjust to the new centre-left government.

Data Released

October 27th 10:30 AUD Producer Price Index (YoY) (3Q)
October 27th 16:00 EUR German Import Price Index (YoY) (SEP) 2.6%
October 27th 22:30 USD Gross Domestic Product (Annualised) (3Q) 2.6%

Post by TorFX

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