Positive Inflation Signals Boost Australian Dollar Ahead of RBA Meeting

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  • Australian Dollar Benefits as Inflation Shows Signs of Strengthening – AUD exchange rates vulnerable ahead of RBA meeting today
  • Surprise UK Construction Sector Contraction Dents Pound – Worries over economic outlook rise ahead of services PMI
  • Euro Fails to Capitalise on Eurozone Investor Sentiment Improvement – Strong retail sales may offer EUR rallying point
  • Canadian Dollar Recovers Ground as Oil Price Improves – Lower US rig count shores up CAD exchange rates

Signs of Higher Inflation Boost Australian Dollar

An uptick in the TD Securities inflation survey encouraged the Australian Dollar yesterday as price pressures showed fresh signs of acceleration. This could give Reserve Bank of Australia (RBA) policymakers greater cause for confidence, limiting the odds of a shift towards dovishness in the near future. AUD exchange rates also benefitted from the general easing in market anxiety, with investors continuing to bet on the prospect of a US-China trade agreement.

The mood towards the Australian Dollar could sour this afternoon, however, if the RBA shows signs of caution at its latest policy meeting.

Pound Slides as UK Construction Sector Enters Contraction

Confidence in the outlook of the UK economy continued to deteriorate last night as February’s UK construction PMI fell short of forecast. As the index slumped from 50.6 to 49.5, falling into contraction territory, this left the Pound on a weaker footing against its rivals. Although the construction sector only offers a limited contribution to the UK gross domestic product this weaker showing reflects a wider pattern of slowing economic growth.

Another weak performance from the UK services PMI could weigh heavily on the Pound tonight, given that the sector accounts for more than three quarters of the gross domestic product.

Investor Sentiment Uptick Fails to Rally Euro

March’s Eurozone Sentix investor confidence index saw a surprise improvement on the month, strengthening from -3.7 to -2.2. However, as the index remains in negative territory this offered limited support to the Euro. Although the index suggests that sentiment within the currency union is picking up confidence in the outlook of the Eurozone economy remains muted, especially in the face of European Central Bank (ECB) dovishness.

Strong Eurozone retail sales figures could shore up EUR exchange rates this evening, though, as rising domestic demand may help to offset the general decline in trade.

US Dollar Shakes Off Construction Spending Contraction

Even though Trump levelled fresh criticism at the Federal Reserve this failed to weigh the US Dollar down overnight. As markets already anticipated the central bank remaining on hold for longer the impact of the criticism proved limited. An unexpected contraction in December’s construction spending was not enough to knock USD exchange rates off a bullish trend, meanwhile, with investors optimistic that the decline could prove short-lived.

A solid improvement in tonight’s ISM non-manufacturing composite index may help the US Dollar extend its gains further.

Lower US Rig Count Boosts Canadian Dollar

Oil prices strengthened at the start of the week, benefitting from trade optimism and the general sense of market risk appetite. As the US rig count fell to its lowest level since May this offered a boost to the commodity-correlated Canadian Dollar, even though US crude production remains elevated. Hopes of a fresh OPEC supply cut also helped to shore up CAD exchange rates last night.

In the absence of any fresh Canadian data today the strength of CAD exchange rates may prove limited.

Risk Appetite Supports New Zealand Dollar

A heightened sense of market risk appetite helped to keep the New Zealand Dollar on a stronger footing yesterday, as investors continue to bet on the prospect of a fresh US-China trade agreement. Even so, the gains of NZD exchange rates were still somewhat limited thanks to the lack of positive New Zealand data.

With confidence in the outlook of the New Zealand economy still muted the New Zealand Dollar may struggle to hold onto its positive footing today.

Data Releases

March 5th 14:30    AUD    Reserve Bank of Australia Rate Decision    1.50%
March 5th 20:30    GBP    Services PMI (FEB)    50
March 5th 21:00    EUR    Eurozone Retail Sales (YoY) (JAN)    2.1%
March 6th 02:00    USD    ISM Non-Manufacturing Composite Index (FEB)    57.3

Post by TorFX

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