- TD Securities Inflation Gauge Remained in Excess of RBA Target – AUD benefits as inflationary outlook remains positive
- EUR Exchange Rates Extended Gains After Better-Than-Expected Trade Surplus – Eurozone economy continues to demonstrate strength
- Falling NZ Food Prices Failed to Dent New Zealand Dollar – Signs still point towards RBNZ remaining on hold
- Pound Demand Limited Ahead of UK Inflation Data – Odds of BoE rate hike could diminish on weaker showing
A slight dip in the TD Securities inflation gauge for December was not enough to dent the Australian Dollar at the start of the week. As the measure remained comfortably in excess of the Reserve Bank of Australia’s (RBA) 2% target range at 2.3% the negative impact of the slowdown was limited. With wider market risk appetite still heightened, as a result of dovish Federal Reserve policymaker comments, there was little to prevent AUD exchange rates making fresh gains.
Any uptick in the ANZ Roy Morgan weekly consumer confidence index could boost the Australian Dollar still further this morning.
A modest improvement in the Rightmove house price index offered little in the way of encouragement to the Pound, with confidence in the outlook of the domestic housing market still lacking. Demand for Sterling generally weakened on Monday, with the boost from Friday’s Brexit-based speculation rapidly fading. Rising anticipation for tonight’s UK consumer price index data also limited the appeal of the Pound, with investors taking positions as they waited for the latest insight into domestic inflation.
If inflationary pressure falls back to 3% on the year this could weigh heavily on GBP exchange rates, as this would give the Bank of England (BoE) incentive to leave interest rates on hold.
Positive news continued to roll in for the Eurozone as November’s trade surplus widened further than forecast. With the domestic economy continuing to outperform expectations the appeal of the Euro improved, benefitting from hopes that the European Central Bank (ECB) will take a more hawkish outlook in the coming months. Details of the provisional agreement between Germany’s CDU and Social Democrats also kept EUR exchange rates on a stronger footing, with the potential coalition showing a willingness to push for greater European integration.
No change is forecast for the finalised German consumer price index, however, which could limit the momentum of the Euro today.
The rather mixed messages of Federal Reserve policymakers increased the pressure on USD exchange rates, with bets on the prospect of an imminent interest rate hike diminishing. All in all, the Fed looks less likely to pursue as aggressive a pace of monetary tightening as investors have hoped to see. Coupled with lingering concerns over the protectionist tendencies of the Trump administration this naturally limited the appeal of the US Dollar.
While a slight uptick is forecast for January’s Empire manufacturing index this is unlikely to be enough to prompt a significant shift in sentiment towards USD.
Existing home sales demonstrated further robust growth in December, rising 4.5% on the month to boost confidence in health of the Canadian housing market. Even so, this failed to encourage a rally for the Canadian Dollar as investors started to brace for this week’s Bank of Canada (BOC) policy meeting. While policymakers are widely expected to raise interest rates this has already been largely priced into CAD exchange rates, offering little room for additional gains.
Even if Brent crude holds above US$70 per barrel the mood towards the Canadian Dollar looks set to remain muted in the near term.
New Zealand Dollar
December’s food price index showed a fresh contraction, falling -0.8% on the month as inflationary pressure failed to materialise within the New Zealand economy. This disappointing showing offered little encouragement to NZD exchange rates, suggesting that the Reserve Bank of New Zealand (RBNZ) will maintain a dovish policy bias. Even so, with investor demand for risk-sensitive assets still running high the New Zealand Dollar held onto an uptrend.
As growth in retail card spending is expected to have eased in December, however, NZD exchange rates may struggle to maintain their momentum today.
January 16th 07:45 NZD Card Spending Retail (MoM) (DEC) 0.5%
January 16th 08:30 AUD ANZ Roy Morgan Weekly Consumer Confidence Index
January 16th 17:00 EUR German Consumer Price Index (YoY) (DEC F) 1.7%
January 16th 19:30 GBP Consumer Price Index (YoY) (DEC) 3.0%
January 16th 23:30 USD Empire Manufacturing (JAN) 19
Post by TorFX