Shock Westpac Rate Hike Drags Australian Dollar Down

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Headlines

  • Surprise Westpac Mortgage Rate Hike Prompted Australian Dollar SlumpMove dents chances of RBA interest rate hike
  • Brexit Commentary Offered Support to Pound Exchange RatesWeaker net consumer credit may weigh on GBP today
  • US Dollar Benefitted as Second Quarter GDP Saw Surprise Upward RevisionInvestors encouraged by robust growth
  • Brewing Italian Budget Conflict Limited Euro DemandMarkets wary of prospect for fresh Eurozone crisis


Australian Dollar

AUD exchange rates came under significant pressure yesterday after Westpac announced a surprise mortgage rate hike. Now that Westpac has broken ranks the rest of the Big Four Australian banks look set to follow suit in the near future, moving out of step with the monetary policy decisions of the Reserve Bank of Australia (RBA). Investors are wary of the impact that these rate hikes could ultimately have on the outlook of the RBA, with the odds of an official interest rate increase now looking more limited.

An uptick in second quarter private capital expenditure could still offer support to the Australian Dollar today, with markets likely to take encouragement from signs of greater domestic confidence.

Sterling

Comments from Cabinet Office minister David Lidlington provoked fresh volatility for the Pound on Wednesday as markets continued to weigh up the odds of a no deal Brexit. As Lidlington attempted to drum up support for Theresa May’s Chequers plan and offered assurances that the UK will not undercut its neighbour in the future this encouraged GBP exchange rates to push higher. A modest rebound in the British Retail Consortium shop price index offered additional support to Sterling.

However, a dip in July’s net consumer credit figure could set GBP exchange rates on a fresh downtrend this evening.

Euro

A modest dip in the German GfK consumer confidence index helped to drive the Euro down against its rivals, even though the index only dropped from 10.6 to 10.5 in September. This weaker reading still suggests that sentiment within the Eurozone’s powerhouse economy is easing, potentially constraining domestic demand. Worries over Italy also weighed heavily on the single currency, with the government still looking set to clash with EU budget rules thanks to its spending plans.

A boost could be in store for EUR exchange rates today, though, as the German inflation rate is expected to remain elevated in August.

US Dollar

Demand for the US Dollar picked up overnight thanks to a surprise upward revision to the second quarter annualised US gross domestic product. With the world’s largest economy continuing to demonstrate solid growth on the quarter the mood towards the US Dollar naturally improved, in spite of persistent trade tensions. While personal consumption showed signs of easing on the quarter this was not enough to limit the bullishness of USD exchange rates at this juncture.

A similarly positive showing from July’s personal consumption expenditure core may see the US Dollar pushing higher across the board tonight.

Canadian Dollar

Investors were disappointed by the second quarter Canadian current account balance, which showed a smaller-than-expected narrowing of the deficit. This suggests that the Canadian economy is not in as strong a state of health as markets had hoped, leaving CAD exchange rates on a weaker footing. Another push higher in oil prices and hopes that Canada will join the US-Mexico trade deal were not enough to prevent the Canadian Dollar’s softening.

As forecasts point towards an easing in June’s gross domestic product figures this could put additional pressure on CAD exchange rates overnight.

New Zealand Dollar

The sense of wider market optimism was not enough to keep the New Zealand Dollar on a positive footing yesterday, with trade tensions between the US and China remaining unresolved. NZD exchange rates were dented by the strength of the latest US growth data, with the chances of further Federal Reserve tightening appearing to rise once again.

Even so, if August’s ANZ activity outlook and business confidence indexes paint a more optimistic picture of the New Zealand economy this is likely to shore up the ‘Kiwi’.

Data Released

August 30th 11:00    NZD    ANZ Activity Outlook (AUG)    
August 30th 11:30     AUD    Private Capital Expenditure (2Q)    0.6%
August 30th 18:30    GBP    Net Consumer Credit (JUL)    1.5 billion
August 30th 22:00    EUR    German Consumer Price Index (YoY) (AUG P)    2.0%
August 30th 22:30    CAD    Gross Domestic Product (YoY) (JUN)    2.3%
August 30th 22:30    USD    Personal Consumption Expenditure Core (YoY) (JUL)    2.0%

Post by TorFX

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