Increasing Signs of RBA Dovishness Drag Australian Dollar Down

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  • RBA Meeting Minutes Lean Towards Dovishness – Australian Dollar slumps as odds of interest rate hike diminish
  • Pound Slides After Labour Suggests Brexit Discussions Stalling – Lack of progress towards agreed UK position weighs on GBP exchange rates
  • Euro Capitalises on German Economic Sentiment Rebound – Widened Eurozone trade surplus to bolster EUR today
  • Inflation Anxiety Limits New Zealand Dollar Demand – Investors remain wary of prospect of RBNZ interest rate cut 

Increasingly Dovish RBA Puts Pressure on Australian Dollar

As April’s Reserve Bank of Australia (RBA) meeting minutes tilted further into dovish territory AUD exchange rates came under fresh pressure. Policymakers signalled that the odds of interest rates rising in the near term was ‘low’, suggesting that the balance between the prospect of policy easing and tightening has shifted. With the RBA taking an increasingly cautious outlook investors were left with little incentive to favour the Australian Dollar yesterday.

With March’s Westpac leading index forecast to remain static on the month AUD exchange rates look set to remain on a bearish trend.

Pound Stumbles as Brexit Talks Stall

UK average weekly earnings continued to accelerate in the three months to February, strengthening to 3.5% on the year and extending their lead over the inflation rate. This latest sign of wage growth encouraged investors to pile back into the Pound last night, with higher wages likely to bolster the economy through higher consumer spending. However, as Jeremy Corbyn signalled that talks with Theresa May over Brexit have stalled GBP exchange rates soon returned to a downtrend.

If the headline UK inflation rate strengthens to 2%, matching the Bank of England’s (BoE) target rate, this could offer the Pound a boost tonight.

Improved German Economic Sentiment Boosts Euro

April’s German ZEW economic sentiment survey bettered forecasts, picking up from -3.6 to 3.1 on the month. With Germans taking a more optimistic view of the economic outlook the mood towards the Euro naturally improved. A solid rebound in Eurozone construction output also encouraged EUR exchange rates, with signs pointing towards a greater level of resilience within the Eurozone economy.

As the Eurozone trade surplus is forecast to widen significantly in February this looks set to give the Euro an additional leg up this evening.

Underwhelming Production Data Limits US Dollar Appeal

Although the NAHB housing market index improved in April USD exchange rates struggled to find any fresh traction. As both March’s industrial and manufacturing production figures fell short of forecast this weighed on confidence in the outlook of the world’s largest economy. A surprise deterioration in March’s capacity utilisation index also put pressure on the US Dollar, pointing towards economic weakness.

As the US trade deficit is expected to widen in February the US Dollar is likely to remain biased to the downside in the near term.

Canadian Dollar Shrugs Off Weak Manufacturing Sales

In another disappointing development for the Canadian economy February’s manufacturing sales fell into a state of contraction. However, this underwhelming showing was not enough to drive CAD exchange rates lower across the board overnight. With the US Dollar on a weaker footing the risk-sensitive Canadian Dollar was able to hold onto a positive trend, even with the Bank of Canada (BOC) looking at increasing risk of an interest rate cut.

A solid acceleration in March’s consumer price index data could offer the Canadian Dollar a stronger rallying point.

Muted Dairy Price Increase Limits New Zealand Dollar Support

The positive run of price increases at the Global Dairy Trade auction continued to lose momentum last night, with prices only gaining 0.5% on the previous session. This muted result left the New Zealand Dollar exposed to fresh downside pressure. Mounting anxiety ahead of this morning’s first quarter consumer price index data equally limited the strength of NZD exchange rates.

If the quarterly inflation rate eases on the year as forecast then the New Zealand Dollar may trend lower in the face of higher odds of a Reserve Bank of New Zealand (RBNZ) interest rate cut.

Data Releases

April 17th 08:45    NZD    Consumer Price Index (YoY) (Q1)    1.7%
April 17th 10:30    AUD    Westpac Leading Index (MoM) (MAR)    0%
April 17th 18:30    GBP    Consumer Price Index (YoY) (MAR)    2.0%
April 17th 19:00    EUR    Eurozone Trade Balance (FEB)    12.3 billion
April 17th 22:30    CAD    Consumer Price Index (YoY) (MAR)    1.9%
April 17th 22:30    USD    Trade Balance (FEB)    -53.6 billion

Post by TorFX

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