New Zealand Dollar Stumbles on Soft Inflation Data

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Headlines

  • AUD Exchange Rates Shrugged Off Weaker Australian Borrowing Figures – Australian Dollar benefits from risk appetite
  • Canadian Dollar Slumped on Surprise Participation Rate Decline – Oil prices fall back from highs
  • Steady Consumer Sentiment Index Failed to Boost US Dollar – Volatility forecast on Fed commentary
  • Underwhelming New Zealand Inflation Prompted NZD Decline – Bullish services PMI may offer rallying point


Australian Dollar

Even though Australian home loans and investment lending figures showed a sharp contraction on the month in March AUD exchange rates remained on a positive footing ahead of the weekend. While this suggests that confidence within the Australian economy is weaker than investors would like the Australian Dollar was still buoyed by the general improvement in market risk appetite. As geopolitical jitters eased this helped the ‘Aussie’ to recover some of its lost ground.

Any decline in credit card purchases may dent the appeal of the Australian Dollar this morning, however.

Sterling

After the sharp slump seen during Thursday’s European session the Pound struggled to find any particular traction against its rivals on Friday. Even so, GBP exchange rates saw more limited downside pressure as investors reassessed the implications of the Bank of England’s (BoE) commentary. With markets remaining hopeful that the central bank will raise interest rates before the end of the year this helped to put something of a floor under Sterling.
 
With Brexit-based jitters still hanging over the domestic outlook, though, the appeal of the Pound is unlikely to dramatically recover in the near term.

Euro

Confirmation that the Spanish inflation rate had eased in April offered EUR exchange rates little in the way of encouragement. As inflationary pressure across the Eurozone remains lacklustre, falling some way short of the European Central Bank’s (ECB) 2% target rate, the appeal of the Euro remains limited. Comments from ECB President Mario Draghi failed to offer the single currency any real support ahead of the weekend, with the policymaker repeating his call for structural reforms within the currency union.

As anticipation builds for the first quarter German and Eurozone gross domestic product data the Euro looks set to remain on a weaker footing.

US Dollar

Although the University of Michigan sentiment index bettered expectations to hold steady at 98.8 in May this failed to shore up the US Dollar. USD exchange rates continued to trend lower as market risk appetite picked up once again. Weaker-than-expected import price index data also put pressure on the US Dollar, adding to concerns that domestic inflation is not as strong as markets would like.

Commentary from Federal Reserve policymakers could offer support to USD exchange rates today, providing the speakers maintain a more upbeat outlook on the economy and monetary policy.

Canadian Dollar

Friday’s raft of Canadian labour market data proved rather mixed in nature, leaving the Canadian Dollar on a downtrend. Although hourly earnings picked up further than forecast this was offset by a surprise decline in the participation rate. With a smaller number of Canadians now active within the job market the Bank of Canada (BOC) looks likely to maintain its neutral policy outlook for longer.

If oil prices continue to unwind their recent gains this is likely to drive further CAD exchange rate losses in the coming days.

New Zealand Dollar

A sharp jump in April’s manufacturing PMI was not enough to boost the ‘Kiwi’ during trade on Friday. While the index rose sharply on the month, indicating a strong level of sector expansion, this was overshadowed by the disappointing nature of the latest food price inflation data. As price growth slowed from 1.0% to just 0.1% this highlighted the continued lack of inflationary pressure within the New Zealand economy, to the detriment of NZD exchange rates.

However, if the services PMI shows a similarly solid improvement on the month the New Zealand Dollar could find a rallying point.


Data Released

May 14th 08:30 NZD Services PMI (APR) 57.1
May 14th 11:30 AUD Credit Card Purchases (MAR)

Post by TorFX

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