Pound Strengthens After Retail Sales Rebound

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  • Cautious RBA Outlook Limits Australian Dollar Appeal – Hopes of US-China trade deal fail to boost AUD exchange rates
  • Strong Retail Sales Data Boosts Pound – Worries over Brexit temporarily ease in spite of parliamentary vote
  • Unexpectedly Dovish ECB Comments Drag Euro Lower – Single currency spooked by prospect of additional monetary stimulus
  • New Zealand Dollar Eases on Weaker Manufacturing PMI – Solid service sector reading may support NZD gains

RBA Caution Keeps Australian Dollar Under Pressure

As Reserve Bank of Australia (RBA) policymakers continued to adopt a cautious outlook the mood towards the Australian Dollar deteriorated on Friday. Demand for the risk-sensitive AUD was also limited thanks to a surprise decline in January’s Chinese consumer price index. With confidence in the underlying strength of the Chinese economy limited the Australian Dollar came under pressure as market risk appetite generally deteriorated. Even so, hopes of a US-China trade agreement still limited the losses of the Australian Dollar.

AUD exchange rates remain vulnerable to any fresh decline in market sentiment today as markets brace for the RBA’s latest meeting minutes.

Retail Sales Rebound Shores up Pound

January’s UK retail sales data bettered expectations ahead of the weekend, showing a 1.2% uptick on the month. This improvement reversed the decline seen over the festive season, suggesting that consumers are not being discouraged by Brexit-based uncertainty. While markets continued to weigh up the odds of a no-deal Brexit, following Theresa May’s latest parliamentary defeat, this was not enough to prevent GBP exchange rates pushing higher.

Even so, if the Rightmove house price index shows fresh signs of a slowdown in the UK housing market this is likely to drive the Pound lower.

Fresh Signs of ECB Dovishness Weigh Down Euro

The Euro came under fresh pressure in the wake of December’s Eurozone trade balance data, which narrowed further than forecast on the month. Although the currency union maintained a solid surplus investors were not encouraged by the deterioration in trade. However, the decline in EUR exchange rates sharpened after a European Central Bank (ECB) policymaker indicted that fresh monetary stimulus could materialise.

With confidence in the outlook of the Eurozone economy already limited the Euro may struggle to find any support today.

US Dollar Stumbles in spite of Stronger Consumer Sentiment

While February’s University of Michigan consumer sentiment index picked up from 91.2 to 95.5 this failed to give USD exchange rates any significant boost. Although improved consumer confidence is likely to support stronger economic growth the disappointing nature of January’s manufacturing production data saw the US Dollar falter. Fresh political turmoil also limited the strength of USD exchange rates as a national emergency was declared in order to generate funds for the controversial border wall.

The US Dollar could see additional volatility if political developments continue to shake market confidence.

Stronger Oil Market Benefits Canadian Dollar

Oil prices continued to push higher ahead of the weekend, even as Chinese inflation data saw unexpected weakness. Hopes that the US and China are on course to reach a fresh trade agreement encouraged oil prices to strengthen, benefiting from the more optimistic mood of investors. While the two sides have yet to reach a deal the prospect of progress was still enough to shore up the Canadian Dollar.

Any downturn in the oil market may see CAD exchange rates sharply reverse their fragile gains, however.

Easing Manufacturing PMI Failed to Support New Zealand Dollar

As January’s manufacturing PMI dipped from 55.1 to 53.1 this saw the New Zealand Dollar return to a weaker footing against its rivals. Although the index remained in a solid state of growth a sense of worry over the underlying strength of the New Zealand economy persists. With risk appetite muted there was little to prevent NZD exchange rates softening.

If this morning’s services PMI shows an uptick on the month, though, this could offer the New Zealand Dollar a rallying point.

Data Releases

February 18th 08:30    NZD    Services PMI (JAN)    53.5
February 18th 11:01    GBP    Rightmove House Price Index (YoY) (FEB)  

Post by TorFX

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