Less Hawkish ECB Leaves Euro Under Pressure

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Headlines

  • Stronger Australian Price Indexes Failed to Boost AUD – Confidence in inflationary outlook remains limited
  • Pound Lacked Direction in Absence of Data – Political jitters muted thanks to UK Parliament’s summer recess
  • Signs of ECB Dovishness Weighed on Euro – Investors discouraged as Draghi reiterated need for ‘significant’ stimulus
  • US Dollar Pushed Higher in Spite of Wider Goods Trade Deficit – Strong second quarter growth may add to bullishness



Australian Dollar

Despite the second quarter Australian import and export price indexes bettering forecast the mood towards the Australian Dollar continued to sour. Investors failed to take much encouragement from the lack of contraction in export prices, with global trade concerns still weighing on market sentiment. While trade tensions between the US and EU eased worries remain over the possibility of a further escalation of the US-China trade spat. As confidence in the outlook of Australian economy is still limited this kept AUD exchange rates on a weaker footing.

Even so, a similarly positive showing from this morning’s second quarter producer price index data could offer the Australian Dollar some support heading into the weekend.

Sterling

GBP exchange rates lacked any significant direction yesterday in the absence of any fresh domestic data. With the UK Parliament now on summer recess political jitters were generally diminished, limiting downside pressure on the Pound. Even so, lingering uncertainties surrounding Brexit and speculation over the likely outcome of the Bank of England’s (BoE) August policy meeting continue to weigh on the minds of investors.

Signs of steady growth in UK housing prices may give GBP exchange rates a boost this afternoon, however.

Euro

The Euro saw little cause for encouragement in the wake of the European Central Bank’s (ECB) July policy meeting. Investors took little heart from ECB President Mario Draghi’s comments to the press, which noted that the Eurozone still requires ‘significant monetary policy stimulus’. This indicates that the central bank remains in a relatively dovish mind-set, in spite of announcing the winding down of its quantitative easing programme at its previous policy meeting.

Confirmation that the French economy lost momentum in the second quarter would prompt further selling of the Euro today.

US Dollar

Disappointing US data was not enough to prevent USD exchange rates returning to an uptrend overnight. Although the advance goods trade deficit widened further than forecast in June the US Dollar was quick to shake the figure off. Rising initial and continuing jobless claims also failed to dent USD, in spite of signs that the US labour market is struggling to tighten further. As markets took a more risk averse outlook this favoured the safe-haven US Dollar.

Further volatility looks to be in store for USD exchange rates tonight as forecasts point towards a sharp increase in the second quarter US annualised gross domestic product.

Canadian Dollar

Upbeat comments from Canadian and Mexican officials over the renegotiation of NAFTA helped to shore up the Canadian Dollar. While talks had stalled earlier in the year the mood appeared positive, with officials indicating that much of the agreement has already been ironed out. This encouraged CAD exchange rates to push higher on hopes that further progress towards a deal might not be so far off.

The Canadian Dollar may struggle to sustain this positivity for long, though, thanks to the unpredictable nature of the Trump administration’s approach to trade.

New Zealand Dollar

A lack of supportive domestic data left the New Zealand Dollar vulnerable to a slump yesterday, especially as market risk appetite declined. As markets remain wary of a fresh escalation in US-China trade tensions demand for the risk-sensitive NZD is still volatile.

NZD exchange rates could suffer further losses if July’s ANZ consumer confidence index shows a fresh decline in domestic sentiment.


Data Released

July 27th 08:00 NZD ANZ Consumer Confidence Index (JUL) 
July 27th 11:30 AUD Producer Price Index (YoY) (2Q) 
July 27th 15:30 EUR French Gross Domestic Product (YoY) (2Q) 1.9%
July 27th 16:00 GBP Nationwide Housing Prices (YoY) (JUL) 1.9%
July 27th 22:30 USD Gross Domestic Product Annualised (QoQ) (2Q) 4.2%

Post by TorFX

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