Euro Under Pressure as Eurozone Inflation Expectations Soften

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Headlines

  • Persistently Weak Australian Housing Market Limited AUD Demand – Easing global trade tensions fail to shore up antipodean currency
  • Month-End Market Repositioning Weighed on Pound – Optimistic BoE Agents’ survey may offer rallying point
  • Smaller Scale Chinese Trade Measures Boosted US Dollar – Dip in consumer confidence failed to dent USD
  • Euro Faltered as Eurozone Inflation Expectations Diminished – EUR vulnerable to weaker German consumer confidence

Australian Dollar

The Australian Dollar saw some support on the back of an easing in trade tensions between the US and China, with the prospect of a trade war seeming to have diminished. However, AUD exchange rates failed to hold onto any particular positivity for long thanks to a sharp recovery in the US Dollar. Although the HIA new home sales data for February showed a smaller contraction on the month this still highlighted the more fragile current health of the Australian housing market.

Even if market worries over global trade continue to ease the Australian Dollar may struggle to capitalise on this while USD exchange rates remain on a stronger footing.

Sterling

Domestic political tensions and Brexit-based uncertainty put renewed pressure on the Pound yesterday, with its recent rally petering out once again. Market repositioning as both the month and the quarter draw to a close also left GBP exchange rates looking somewhat exposed. As investors re-evaluate the relative value of Sterling this has encouraged a continued unwinding of some of its previous gains. All in all, the outlook for the Pound still looks rather vulnerable, with further losses seeming likely.

However, if the latest Bank of England (BoE) Agents’ survey of business conditions proves more optimistic in tone this could offer GBP exchange rates some support today.

Euro

In a disappointing showing the German import price index was found to have contracted further than forecast in February, slowing -0.6% on the year. This does not bode overly well for the Eurozone inflationary outlook, particularly as the latest consumer inflation expectations index also dipped. As a result, the mood towards the Euro soured on Tuesday, with hopes of the European Central Bank (ECB) adopting a more hawkish policy bias naturally diminishing.

Any weakening of the GfK German consumer confidence index is likely to put additional pressure on EUR exchange rates in the short term.

US Dollar

As proposed Chinese counter tariffs proved to be of a smaller scale than anticipated this helped to ease worries over the outlook of the US economy. With a full-blown trade war looking less likely markets are hopeful that the world’s largest economy will face rather less disruption than previously feared. Even though March’s consumer confidence index unexpectedly weakened this was not enough to prevent USD exchange rates pushing higher across the board overnight.

An upward revision to the fourth quarter annualised US gross domestic product could give the US Dollar an additional boost.

Canadian Dollar

Oil recovered ground during Tuesday’s European session, encouraged by elevated geopolitical tensions in the Middle East. Although rising US oil production and global oversupply concerns remain this was not enough to prevent the Canadian Dollar gaining ground against many of the majors. As worries over the US approach to trade also eased, improving the prospect of successful NAFTA renegotiation, CAD exchange rates found additional support.

Even so, if the latest US crude oil inventories data highlights a fresh increase in output this could return the Canadian Dollar to a softer footing.

New Zealand Dollar

Even as market risk appetite continued to pick up the New Zealand Dollar struggled to hold onto an uptrend. A stronger US Dollar put renewed pressure on the commodity-correlated ‘Kiwi’, with investors more inclined to favour the lower-yielding currency at this stage. Nevertheless, the easing in global trade tensions helped to limit the downside potential of NZD exchange rates.

If the ANZ activity outlook index for March proves positive the New Zealand Dollar may find a rallying point, even though doubts remain over the strength of the domestic outlook.

 Data Released

March 28th 10:00 NZD ANZ Activity Outlook (MAR)
March 28th 16:00 EUR German GfK Consumer Confidence (APR) 10.7
March 28th 18:30 GBP Bank of England Agents’ Summary of Business Conditions
March 28th 22:30 USD Gross Domestic Product Annualised (QoQ) (4Q T) 2.7%

Post by TorFX

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