Euro Under Pressure as German Economic Sentiment Crumbles

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  • Markets Unsurprised by Cautiously Optimistic RBA Minutes – Improved Westpac leading index could encourage Australian Dollar gains
  • UK Wage Growth Sees Fastest Acceleration Since January 2009 – Pound strengthens ahead of September inflation data
  • Euro Dragged Down by Unexpectedly Weak German Economic Sentiment – Single currency weakens as German confidence slumps
  • NZD Exchange Rates Find Support After NZ Inflation Betters Forecast – Chances of RBNZ interest rate cut fall

Uneventful RBA Minutes Limit Australian Dollar Potential

The Reserve Bank of Australia (RBA) delivered another largely unchanged set of meeting minutes yesterday, although policymakers acknowledged the increasing risks surrounding the global outlook. With the central bank looking set to leave interest rates on hold for some months to come the Australian Dollar struggled to find any particular support in the wake of the minutes. Even so, solid Chinese inflation data helped to limit the downside pressure on AUD exchange rates.

An improved Westpac leading index could encourage Australian Dollar gains today, with investors hoping to see signs of a continued uptick in economic momentum.

Pound Strengthens as UK Wage Growth Hits 9-Year High

UK wage growth surprised to the upside in August, accelerating at its fastest pace since January 2009. This solid improvement gave the Pound a boost against its rivals, encouraging confidence in the outlook of the domestic economy. While the labour market failed to show fresh signs of tightening, with employment numbers unexpectedly easing, this was not enough to prevent GBP exchange rate gains. The positive data limited the impact of continued Brexit uncertainty, even though talks remain in a state of stalemate.

If September’s UK consumer price index weakens in line with forecasts the Pound could trend higher, as falling price pressures would pave the way for further wage growth.

Sharp Fall in German Sentiment Weighs on EUR Exchange Rates

Investors were caught off guard by a sharp decline in October’s German ZEW economic sentiment index, leaving the Euro on a weaker footing. As the index plunged from -10.6 to -24.7 on the month the mood towards the single currency soured. With confidence within the Eurozone’s powerhouse economy continuing to ease economic momentum looks set to slow further in the third quarter. Although the Eurozone trade surplus widened further than forecast in August this was not enough to support EUR exchange rates.

As the finalised Eurozone consumer price index for September is not expected to see any revision the potential for a Euro rally looks limited today.

Modest Industrial Production Growth Encourages US Dollar

USD exchange rates found some support overnight as September’s US industrial production data bettered forecast. A smaller-than-expected decline in production growth gave investors some incentive to buy into the US Dollar, especially in the face of persistent market risk aversion. However, as the latest capacity utilisation data failed to show an improvement on the month the strength of the US Dollar remained generally limited, with markets still betting on the prospect of another 2018 Federal Reserve interest rate hike.

A contraction in tonight’s building permits figure may prevent USD exchange rates returning to a bullish trend.

Improving Business Confidence Boosts Canadian Dollar

Even though oil prices failed to hold onto an uptrend last night this did not drag Canadian Dollar exchange rates down. The positive nature of the Bank of Canada’s (BOC) latest quarterly business survey gave CAD a fresh boost, with markets hoping that this could improve the chances of an imminent interest rate hike. With confidence in the outlook of the Canadian economy remaining positive CAD exchange rates were thus able to shrug off the weakening of oil markets.

This positivity could fade tonight, however, as forecasts point towards a contraction in August’s manufacturing sales data.

RBNZ Rate Cut Odds Fall as NZ Inflation Betters Forecast

Stronger-than-forecast third quarter New Zealand consumer price index data offered the New Zealand Dollar fresh cause for optimism. With inflation climbing to 1.9% on the year the case for a Reserve Bank of New Zealand (RBNZ) interest rate cut diminished. However, an uptick in general market risk aversion prompted the reversal of some of the gains of NZD exchange rates overnight.

In the absence of fresh domestic data the New Zealand Dollar may fall out of favour today.

Data Released

October 17th 10:30 AUD Westpac Leading Index (MoM) (SEP) 
October 17th 19:30 GBP Consumer Price Index (YoY) (SEP) 2.6%
October 17th 20:00 EUR Eurozone Consumer Price Index (YoY) (SEP F) 2.1%
October 17th 23:30 CAD Manufacturing Sales (MoM) (AUG) -0.8%
October 17th 23:30 USD Housing Starts (MoM) (SEP) -5.6%

Post by TorFX

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