Pound Hits Post-Brexit High Against Australian Dollar Despite Weaker Inflation

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Headlines

  • Australian Dollar Extended Losses After Cautious RBA Minutes – AUD/GBP exchange rate falls to post-Brexit low
  • GBP Exchange Rate Momentum Dented by Weaker UK Inflation – Softer price pressures give Bank of England less cause to raise interest rates
  • Falling Dairy Prices Limited New Zealand Dollar Demand – Confidence in domestic outlook remains muted
  • Rising Middle Eastern Tensions Boosted Canadian Dollar – Oil pushes higher in spite of US production concerns

Australian Dollar

Unsurprisingly, the Reserve Bank of Australia (RBA) maintained a relatively cautious tone in its March meeting minutes. As policymakers noted expectations for a ‘gradual’ return to higher inflation the prospect of any imminent shift in monetary policy diminished, leaving the Australian Dollar to fall further out of favour. This latest bout of weakness pushed the ‘Aussie’ to a nearly two-year low against the Pound, touching its weakest level since the Brexit vote as global risk appetite remained limited.

Unless the Westpac leading index shows a sharp improvement on the month the Australian Dollar is likely to remain under pressure today.

Sterling

Investors remained in a generally optimistic mood thanks to the breakthrough in Brexit talks, even though agreement in some key areas is still lacking. This helped to limit the negative impact of the latest UK consumer price index data, which showed a sharper dip in inflationary pressure than forecast. While weaker inflation reduces the pressure on the Bank of England (BoE) to raise interest rates, though, this did not keep Sterling on a weaker footing for long. As a result, the GBP/AUD exchange rate remained close to its best level since the EU referendum in 2016.

An uptick in the latest UK average weekly earnings figures may see the Pound extending its gains further, boosting the odds of a BoE rate hike coming in May.

Euro

Demand for the single currency diminished in the wake of March’s ZEW economic sentiment surveys, which indicated that domestic confidence is more limited than previously thought. Particularly concerning was the sharp slump in the German expectations index, highlighting the fact that the Eurozone’s powerhouse economy is not entirely out of the political woods yet. Coupled with weaker-than-expected German producer price index data this left EUR exchange rates lacking in support.

With no fresh Eurozone data set for release today the mood towards the Euro is unlikely to see any material improvement in the short term.

US Dollar

As markets continued to brace for this week’s Federal Reserve interest rate decision the US Dollar was able to find some upside against many of the majors. The persistent sense of market risk appetite helped to shore up USD exchange rates, even though concerns remain over the outlook of the US economy in the event of a trade war. With investors confident that policymakers will imminently raise interest rates the vulnerability of the US Dollar was somewhat limited.

Anticipation ahead of tomorrow’s rate announcement looks set to support USD exchange rates, although a less hawkish message from policymakers could see the US Dollar slump.

Canadian Dollar

A modest rebound in January’s wholesale trade sales figure offered the Canadian Dollar a rallying point overnight, with confidence in the domestic outlook improving. CAD exchange rates also benefitted from a surge in oil prices, which rose to their highest level of the month. Rising geopolitical tensions between Iran and Saudi Arabia, as well as the prospect of a fresh dip in Venezuelan oil production, boosted demand for crude during Tuesday’s European session.

Even so, the Canadian Dollar may struggle to hold onto its gains for long if US crude oil production continues to step up.

New Zealand Dollar

Disappointingly, the Global Dairy Trade index continued to weaken overnight as prices contracted -1.2% on the fortnight. This does not bode overly well for the outlook of the New Zealand economy, giving investors more reason to sell out of the ‘Kiwi’. Although the first quarter Westpac consumer confidence index had shown some improvement yesterday this was not enough to prevent NZD exchange rates slipping.

However, an increase in February’s credit card spending could offer the New Zealand Dollar a rallying point today.

Data Released

March 21st 09:30 AUD Westpac Leading Index (MoM) (FEB)
March 21st 12:00 NZD Credit Card Spending (YoY) (FEB)
March 21st 19:30 GBP Average Weekly Earnings (3M/YoY) (JAN) 2.6%
March 22nd 00:00 USD Existing Home Sales (MoM) (FEB) 0.4%

Post by TorFX

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