Rising Employment Boosts Australian Dollar as US Inflation Disappoints

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  • Strong Employment Data Encourages Australian Dollar Rally – AUD exchange rates benefit as number of economically active Australians increases
  • Uneventful BoE Meeting Offers Little Support to Pound – Worries over no-deal Brexit continue to limit Sterling
  • Lowered ECB Growth Forecasts Failed to Dent Euro Demand – Commitment to end quantitative easing programme in December boosts investor spirits
  • Weaker-Than-Forecast Inflation Weighs on US Dollar – Disappointing figure unlikely to discourage Fed interest rate hike

Surge in Employment Bolsters Australian Dollar Exchange Rates

August’s labour market data proved encouraging for the Australian Dollar yesterday, with the headline employment change figure showing a sharp surge of 44,000 on the month. This was accompanied by a shift higher in the month’s participation rate, indicating that a larger percentage of Australians are not economically active. Coupled with weaker-than-expected US inflation figures overnight there was little to stop AUD exchange rates pushing higher.

However, if global trade tensions escalate further over the course of the day this could drag the Australian Dollar down once again.

Lack of BoE Action Limits Pound Sterling Momentum

As anticipated, the Bank of England (BoE) voted to leave interest rates on hold at its September policy meeting. GBP exchange rates saw limited movement in the wake of the announcement, with the latest meeting minutes showing little change in outlook from August’s. Even so, policymakers continue to express a note of caution on the subject of Brexit, suggesting that rates are unlikely to rise for some months yet. As credit rating agency Moody’s also warned of the negative impact that a no-deal Brexit will have on the UK economy this left Sterling on a weaker footing.

The shifting odds of the UK leaving the EU without any deal in place are likely to drive further Pound volatility in the days ahead.

Euro Benefits as ECB Confirms Commitment to End of QE

Although the European Central Bank (ECB) lowered its growth forecasts for both 2018 and 2019 this failed to keep the Euro under pressure yesterday. Investors instead focused on the ECB’s confirmation that it will halve the value of its quantitative easing programme in October before bringing it to a close in December. This offered some reassurance to markets that the central bank is committed to tightening monetary policy, even though discussions over interest rates have yet to start.

A narrowing of the Eurozone trade surplus in July may reverse some of the single currency’s gains this evening.

Underwhelming Inflation Drags USD Lower

Following on from Wednesday’s disappointing producer price index data August’s consumer price index also surprised to the downside. USD exchange rates came under pressure as the headline inflation rate eased from 2.9% to 2.7% on the year, even though this is unlikely to impact the Federal Reserve’s September policy decision. Nevertheless, this dip in inflationary pressure prompted investors to pile out of the US Dollar, especially as the appeal of higher-yielding rivals improved.

With a slowdown also forecast for August’s advance retail sales data USD exchange rates may struggle to recover any bullish momentum tonight.

Rising OPEC Oil Output Pushes Canadian Dollar into Fresh Slump

The Canadian Dollar fell out of favour once again overnight as the oil market reversed much of Wednesday’s gains. This move was driven by a report from the International Energy Agency (IEA) which noted that crude oil output in OPEC nations had climbed by 420,000 barrels a day in August. With worries over the prospect of a fresh global oversupply glut still weighing on the minds of investors this left CAD exchange rates on a downtrend.

As long as markets maintain hope of an imminent trade deal between Canada and the US, however, the downside potential of the Canadian Dollar may prove limited.

New Zealand Dollar Under Pressure After Food Price Index Contraction

Confidence in the New Zealand Dollar eased yesterday in response to a disappointing August food price index, which contracted -0.5% on the month. With domestic inflationary pressure failing to show any signs of strengthening the mood of NZD exchange rates naturally soured, even in the face of wider market risk appetite. As lagging inflation raises the risk of a Reserve Bank of New Zealand (RBNZ) interest rate cut the ‘Kiwi’ may struggle to pick up in the near term.

Any fresh deterioration in global market sentiment could push NZD exchange rates towards fresh lows today.

Data Released

September 14th 08:30 NZD Manufacturing PMI (AUG) 51.0
September 14th 19:00 EUR Eurozone Trade Balance (JUL) 16.2 billion
September 14th 22:30 USD Advance Retail Sales (MoM) (AUG) 0.40%

Post by TorFX

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