German Economic Sentiment Slump Dragged on Euro Demand

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Headlines

  • Muted RBA Minutes Left Australian Dollar Exchange Rates Unsupported – Stronger Westpac leading index may boost demand
  • Euro Slumped as German Economic Sentiment Plunged – EUR rates unlikely to find support on finalised inflation data today
  • Pound Failed to Capitalise on First Signs of UK Real Wage Growth – Further volatility forecast on inflation reading
  • Rising Manufacturing Sales Boosted CAD – Dovish Bank of Canada meeting could reverse gains

Australian Dollar

Reaction to the Reserve Bank of Australia’s (RBA) April meeting minutes proved rather limited, leaving the Australian Dollar lacking in any particular support yesterday. With policymakers maintaining a relatively cautious outlook the prospect of an interest rate hike remains distant. An easing in the Chinese gross domestic product data put additional pressure on the ‘Aussie’, with markets still jittery over the global economic outlook.

An uptick in the Westpac leading index could still offer AUD exchange rates a rallying point this morning, however.

Sterling

As the UK average weekly earnings figure failed to strengthen as forecast on the year in the three months to February the mood towards the Pound soured once again. Even so, with wage growth clocking in at 2.8% this was still higher than the corresponding inflation figure. This suggests that the UK is finally seeing a return to real wage growth, albeit growth of just 0.1%. While the unemployment rate also fell to a 42-year low this was not enough to encourage any particular GBP gains.

Sterling may be encouraged to push higher across the board this evening, though, if the inflation rate surprises to the upside.

Euro

Confidence in the Euro diminished sharply in the wake of April’s ZEW economic sentiment surveys, which proved less-than-positive in tone. Markets were discouraged to find that the German sentiment index had slumped from 5.1 to -8.2 in April, taking the index to a five-year low. This weaker showing exacerbated fears over the outlook of the Eurozone economy, which has shown signs of losing momentum since the start of the year.

With no change forecast from the finalised Eurozone consumer price index data for March the Euro could struggle to find any particular boost today.

US Dollar

An unexpected increase in US capacity utilisation gave investors fresh incentive to buy into the US Dollar overnight, pointing towards stronger domestic growth. All in all, the picture of the US outlook still looks rather encouraging at this juncture. As a result markets are continuing to bet on the prospect of the Federal Reserve taking a more hawkish approach to monetary policy, potentially raising interest rates three more times before the end of 2018.

Commentary from Fed policymakers could provoke some volatility for the US Dollar in the coming days, with focus also falling on domestic political developments.

Canadian Dollar

A surprisingly strong rebound in February’s Canadian manufacturing sales figure helped to shore up CAD exchange rates on Tuesday. The 1.9% uptick reversed the previous month’s contraction, encouraging greater confidence in the underlying health of the Canadian economy. With oil prices continuing to trend comfortably above the $70 per barrel mark the downside potential of the Canadian Dollar was muted.

Even so, the Canadian Dollar is still expected to come under increased pressure as tonight’s Bank of Canada (BOC) interest rate decision approaches.

New Zealand Dollar

Demand for the New Zealand Dollar slumped sharply in response to March’s REINZ house sales data, which showed a -9.9% contraction on the year. With the domestic housing market continuing to show signs of softness the appeal of the ‘Kiwi’ naturally declined. A general weakening in market risk appetite added to the bearishness of NZD exchange rates yesterday.

In the absence of any fresh domestic data the New Zealand Dollar looks set to remain under pressure today.

Data Released

April 18th 10:30 AUD Westpac Leading Index (MoM) (MAR)
April 18th 18:30 GBP Consumer Price Index (YoY) (MAR) 2.7%
April 18th 19:00 EUR Eurozone Consumer Price Index (YoY) (MAR F) 1.4%
April 19th 00:00 CAD Bank of Canada Rate Decision 1.25%

Post by TorFX

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