RBA Cuts Forecasts to Prompt AUD Slump

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Headlines

  • RBA Lowered Growth and Inflation Forecasts – Australian Dollar slumped as outlook turned dovish
  • NIESR Estimate Pointed Towards Stronger UK Growth – GBP rates rallied on improved domestic outlook
  • Disappointing Consumer Confidence Index Weighed on US Dollar – Market risk appetite strengthened
  • New Zealand Dollar Downtrend Maintained by Weaker Card Spending – Signs continue to point towards dovish RBNZ bias

Australian Dollar

Markets were not impressed by the Reserve Bank of Australia’s (RBA) decision to lower its economic forecasts in its latest Statement on Monetary Policy. The central bank took a rather less optimistic view of the domestic outlook, suggesting that inflation is likely to remain short of target for some time to come. This dovish release raised the prospect of the RBA’s next policy move being an interest rate cut, rather than the hike that investors are hoping for. As a result, the Australian Dollar trended lower across the board.

In the absence of any new domestic data the ‘Aussie’ is likely to remain on a weaker footing today.

Sterling

Friday’s raft of UK data offered solid support to GBP exchange rates, painting a rather stronger picture of the domestic economy. Particularly encouraging was a surprise uptick in the NIESR gross domestic product estimate for the three months to October, which clocked in at 0.5%. This suggests that growth is continuing to pick up pace after a weaker start to the year, even though Brexit-based uncertainty still looms large. Rising manufacturing and industrial output added to the positive mood of the Pound.

Even so, unless the sense of political turmoil surrounding Theresa May’s government starts to ease this could keep Sterling under pressure in the near term.

Euro

A solid uptick in French industrial production helped to keep the Euro on a positive footing ahead of the weekend, illustrating the robust nature of the Eurozone economy. EUR exchange rates also benefitted from a softened US Dollar, with investors inclined to favour the single currency over its rival thanks to poor US data. Even with the European Central Bank (ECB) looking set to remain on hold for the foreseeable future the mood towards the Euro remained generally bullish.

However, the single currency looks vulnerable to downside pressure after its week of solid gains.

US Dollar

An unexpected dip in the University of Michigan confidence index weighed heavily on the ‘Greenback’, indicating that consumers are in a less optimistic state than previously thought. While this is unlikely to be enough to put a dent in the Federal Reserve’s intent to raise interest rates again in December the mood towards the US Dollar nevertheless soured. Investors were also discouraged by signs that the Trump administration’s tax reforms may not materialise for some time to come.

Tonight’s monthly budget statement may struggle to improve the appeal of the ‘Greenback’, though, if it reveals a deficit.

Canadian Dollar

Risk appetite offered support to CAD exchange rates ahead of the weekend, with a weaker US Dollar improving the appeal of the higher-yielding Canadian Dollar. The persistent strength of oil markets also fuelled demand for the ‘Loonie’, with the commodity continuing to trend in the region of a two-year high.

Even so, with the outlook of the Canadian economy still muted CAD exchange rates may struggle to make any particular headway today.

New Zealand Dollar

As retail card spending failed to pick up as much as forecast on the month in October the ‘Kiwi’ remained under pressure. More limited levels of consumer spending suggest that domestic confidence is not as strong as might be hoped. On top of the Reserve Bank of New Zealand’s (RBNZ) rather dovish outlook this gave investors further incentive to sell out of the New Zealand Dollar.

If New Zealand food prices show signs of strengthening, however, this could point towards rising inflationary pressure and limit any future RBNZ dovishness.

Data Released

November 13th 07:45 NZD Food Prices (MoM) (OCT)
November 14th 05:00 USD Monthly Budget Statement (OCT)

Post by TorFX

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