New Zealand Dollar Under Pressure Over Potential RBNZ Changes

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Headlines

  • ‘Aussie’ Suffered From Lack of Risk Appetite – Rising private sector credit could boost AUD confidence
  • Pound Buoyant in Spite of IFS Warning Over UK Deficit Forecast – Odds still point towards imminent BoE rate hike
  • Euro Shook Off German Inflation Miss – Weaker Eurozone consumer price index may dent EUR exchange rates
  • Potential Change to RBNZ Mandate Spooked NZD – Politics remains significant ‘Kiwi’ headwind

Australian Dollar

Demand for the ‘Aussie’ was relatively limited at the start of the week, largely thanks to a data-light day of trading. Without any encouragement from domestic data the Australian Dollar struggled to find traction against many of its rivals, particularly as the general sense of market risk appetite remained limited. As the Australian government remains distinctly fragile with its one-seat majority the appeal of the antipodean currency is still muted by the increased political uncertainty.

An uptick in private sector credit could offer the ‘Aussie’ a rallying point, though, if signs point towards a greater sense of confidence within the domestic economy.

Sterling

Although the Institute for Fiscal Studies (IFS) warned that the UK deficit is likely to come in at more than double its previous forecast in the 2021-22 fiscal year this failed to weigh on the Pound. While this news puts greater pressure on Chancellor Philip Hammond ahead of his Budget speech investors remain focused on this week’s Bank of England (BoE) policy meeting. As September’s mortgage approvals figure bettered forecast this added to the odds of an imminent rate hike, keeping Sterling on a stronger footing.

Even so, as the GfK consumer confidence index is expected to ease further in September this could dampen the mood towards GBP exchange rates today.

Euro

Markets remain generally confident that Catalonia will not succeed in breaking away from Spain, limiting the downside bias of the Euro at the start of the week. While tensions are still high in the region EUR exchange rates have recovered ground as the initial shock of last week’s unilateral independence declaration eased. This helped the single currency to shake off the negative impact of disappointing German consumer price index data, which showed that inflationary pressure had unexpectedly stagnated on the month.

A similar downside surprise from the corresponding Eurozone consumer price index figures could weigh on the Euro, though, as the odds of any European Central Bank (ECB) hawkishness fade.

US Dollar

Reports that the Trump administration favours the more dovish Fed governor Jerome Powell to become the next Federal Reserve Chair prompted some jitters for the US Dollar. This could threaten the odds of the Fed continuing to pursue a faster pace of monetary tightening over the coming year, even though a December interest rate hike remains a near-certainty. Even so, as US personal spending continued to expand at a moderate pace in September this limited the downside potential of USD exchange rates overnight.

If October’s consumer confidence index strengthens as forecast the ‘Greenback’ is likely to return to a more bullish footing.

Canadian Dollar

Even with Brent crude continuing to trend above the psychologically important US$60 per barrel mark the mood towards the ‘Loonie’ remained bearish. This is still largely due to disappointment over the current policy outlook of the Bank of Canada (BOC), with the central bank looking set to leave interest rates on hold for some time to come. Jitters over a potential dip in tonight’s gross domestic product data also limited the appeal of the Canadian Dollar.

However, if growth remained robust in August this could see the ‘Loonie’ recovering some of its lost ground.

New Zealand Dollar

Comments from Finance Minister Grant Robertson prompted the ‘Kiwi’ to shed further ground on Monday, with markets spooked by the government’s plans for the Reserve Bank of New Zealand (RBNZ). As the centre-left coalition appears primed to alter the RBNZ’s mandate, to target full employment as well as price stability, investors piled out of the New Zealand Dollar once again.

Any improvement in the ANZ activity outlook index may offer a boost to NZD exchange rates today, although political developments still remain a major headwind for the ‘Kiwi’.

Data Released

October 31st 10:00 NZD ANZ Activity Outlook (OCT)
October 31st 10:01 GBP GfK Consumer Confidence (OCT) -10
October 31st 10:30 AUD Private Sector Credit (YoY) (SEP) 5.6%
October 31st 20:00 EUR Eurozone Consumer Price Index (YoY) (OCT) 1.5%
October 31st 22:30 CAD Gross Domestic Product (YoY) (AUG) 3.5%
November 1st 00:00 USD Consumer Confidence Index (OCT) 121

Post by TorFX

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