Euro Trends Higher in Spite of Faltering German Confidence

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Headlines

  • RBA Minutes Showed Increasing Confidence Over Domestic Outlook – AUD exchange rates hampered by risk aversion
  • Pound Faltered on Threat to UK Financial Sector – Potential loss of passporting rights weighs heavily on investors
  • Weaker German Business Sentiment Failed to Dent Euro – Markets remain confident in Germany’s economic momentum
  • Dairy Prices Continued to Fall – New Zealand Dollar struggles to gain traction

Australian Dollar

Markets were generally encouraged by the tone of the Reserve Bank of Australia’s (RBA) December meeting minutes, which took a more confident view on the domestic outlook. This helped to boost the Australian Dollar further against its rivals, especially as the Roy Morgan weekly consumer confidence index ticked higher. However, as the prospect of any RBA monetary tightening remains rather distant the ‘Aussie’ soon started to soften once again.

A disappointing showing from the Westpac leading index could put further downside pressure on AUD exchange rates this morning.

Sterling

The Pound’s positive mood was quick to fade, with investors discouraged by commentary from chief EU negotiator Michel Barnier. As Barnier firmly ruled out the possibility of a bespoke trade deal, and noted that London’s financial sector will lose its passporting rights, this weighed heavily on Sterling. Worries over the shape of the UK’s future trading relationship with the EU are likely to continue to dog GBP exchange rates for some time to come, particularly given the persistent division amongst Conservative ministers.

The latest comments from Bank of England (BoE) Governor Mark Carney look set to provoke further volatility for the Pound this evening.

Euro

While the German IFO business sentiment indexes fell short of forecast for December this failed to dent the single currency. Even though business expectations unexpectedly declined from 111 to 109.5 on the month, reflecting worries over recent political uncertainty, the mood towards the Euro remained positive. Investors are still confident that the Eurozone’s powerhouse economy will maintain its strong momentum heading into 2018, with the impact of the political situation set to fade.

With the German producer price index forecast to have eased slightly on the month EUR exchange rates could falter, as the odds of European Central Bank (ECB) hawkishness diminish further.

US Dollar

Optimism surrounding the Trump administration’s tax reform bill struggled to keep the ‘Greenback’ shored up on Tuesday. However, better-than-expected housing starts and building permits data offered some additional support to USD exchange rates overnight. This gave investors fresh incentive to buy back into the US Dollar, even though questions remain over the ultimate impact of the tax reforms.

Another strong showing from tonight’s existing home sales data may give the ‘Greenback’ another boost, with the domestic housing market showing signs of resilience.

Canadian Dollar

Demand for the ‘Loonie’ continued to diminish thanks to a stronger US Dollar and building market anticipation over the Trump administration’s tax reform bill. Confidence in the outlook of the Canadian economy remains somewhat muted at this juncture, especially as investors brace for high impact data due later in the week. Persistent worries over the renegotiation of NAFTA have also continued to hamper CAD exchange rates.

Should this evening’s wholesale trade sales figure show another decline on the month then the Canadian Dollar could fall even further out of favour.

New Zealand Dollar

With prices at the Global Dairy Trade auction continuing to slump the mood towards the New Zealand Dollar soured. Although the ANZ activity outlook for December proved unexpectedly positive this failed to keep NZD exchange rates on a stronger footing, in spite of the report sounding a rather optimistic note. An increased sense of market risk aversion equally dented the appeal of the ‘Kiwi’, with a stronger US Dollar weighing heavily on the commodity-correlated currency.

This morning’s raft of trade data could offer the New Zealand Dollar a rallying point, though, provided exports are found to have picked up on the month.

Data Released

December 20th 07:45 NZD Trade Balance (NOV) -550 million
December 20th 09:30 AUD Westpac Leading Index (MoM) (NOV)
December 20th 17:00 EUR German Producer Price Index (YoY) (NOV) 0.2%
December 20th 23:15 GBP BoE’s Carney Speaks in London
December 20th 23:30 CAD Wholesale Trade Sales (MoM) (OCT)
December 21st 01:00 USD Existing Home Sales (NOV) 0.7%

Post by TorFX

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