- RBA Governor Maintained Neutral Policy Outlook – Australian Dollar softened as odds of policy action dwindled
- Weaker-Than-Forecast UK Retail Sales Dented Pound – Signs point towards weaker consumer confidence
- NZD Exchange Rates Leapt on Strong Manufacturing PMI – Similarly robust services PMI may add to gains today
- US Dollar Recovered Ground as Import Prices Picked Up – Rising inflationary pressure boosts Fed rate hike odds
Unsurprisingly, Reserve Bank of Australia (RBA) Governor Philip Lowe maintained a rather cautious view on monetary policy in his appearance before the parliamentary committee. As Lowe noted that the central bank sees little case for an interest rate hike in the near term this naturally discouraged investors. While this saw the Australian Dollar extend its slump against some of the majors, though, it was still able to hold onto an uptrend against the weaker Pound and Euro.
Ahead of tomorrow’s release of the latest RBA meeting minutes AUD exchange rates are likely to remain under some degree of pressure.
Markets were disappointed by January’s UK retail sales data, which failed to show as much of an improvement on the December figures as hoped. As sales excluding auto fuel only rebounded by a modest 0.1% on the month, doing little to reverse the previous -1.5% contraction, demand for the Pound remained limited. With consumer spending likely to remain under pressure for the foreseeable future, thanks to high levels of inflation, this weaker showing does not bode well for the UK outlook.
Jitters over Brexit may well drag on GBP exchange rates today, with speculation ramping up ahead of the next round of negotiations.
Confidence in the single currency remained rather muted on Friday, despite a moderate improvement in the German wholesale price index. While this suggests that some inflationary pressure is building within the Eurozone’s powerhouse economy, though, the odds of the European Central Bank (ECB) returning to a tightening bias in the near term are still limited. Comments from ECB board member Benoît Cœuré did little to bolster the appeal of the Euro, maintaining a rather cautious stance.
A solid Eurozone construction output figure may offer some support to the single currency tonight, though.
Better-than-forecast US import and export price index data encouraged USD exchange rates to rally ahead of the weekend, boosting confidence in the outlook of the domestic economy. These offered further evidence that inflationary pressure within the world’s largest economy is building, increasing the odds of imminent policy action from the Federal Reserve. Coupled with bullish housing market data, this drove the US Dollar higher against the majority of the majors.
Even so, the upside potential of USD exchange rates still looks rather limited in the near term unless market risk appetite deteriorates significantly.
Fresh pressure was in store for the Canadian Dollar in the wake of the bullish US data, with the appeal of the more risk-sensitive currency naturally diminishing. Even though the oil market was able to maintain some positive momentum ahead of the weekend this was not enough to shore up CAD exchange rates. A surprise contraction in Canadian manufacturing sales also contributed to the bearish mood, undermining confidence in the health of the domestic economy.
Demand for the Canadian Dollar is unlikely to improve particularly in the coming days, barring a more marked turnaround in oil prices.
New Zealand Dollar
January’s manufacturing PMI surprised to the upside, leaping from 51.1 to 55.6 on the month as the sector saw a solid rate of expansion. This encouraged the New Zealand Dollar to trend higher across the board on Friday, giving investors greater cause for confidence. Even though market risk appetite was later dented by a resurgent US Dollar this was not enough to hold back NZD exchange rates.
A similarly positive showing from this morning’s services PMI may see the New Zealand Dollar extend its bullish run further.
February 19th 07:30 NZD Services PMI (JAN) 56
February 19th 20:00 EUR Eurozone Construction Output (YoY) (DEC) 2%
Post by TorFX