Signs of Increasing RBA Caution Limit Australian Dollar Demand

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  • RBA Minutes Highlight Economic Downsides and Strike Cautious Tone – Australian Dollar eases as prospect of monetary tightening continues to fade
  • Easing German Business Confidence Weighs on Euro – Signs continue to point towards lacklustre Eurozone economic outlook
  • Second Consecutive Rise in Dairy Prices Boosts New Zealand Dollar – Confidence in NZ economy improves
  • Canadian Dollar Weakens on Surprise Manufacturing Sales Contraction – Oil prices sink to fresh fifteen-month low

Cautious RBA Minutes Limit Australian Dollar Appeal

The Reserve Bank of Australia’s (RBA) December meeting minutes proved more dovish in tone, highlighting the downside risks that the Australian economy faces. The less confident nature of the minutes left the Australian Dollar lacking in support yesterday, with the RBA looking set to leave interest rates on hold for some time to come. A general decline in market risk appetite also weighed on AUD exchange rates as concerns over the global economic outlook mounted once again.

Unless the Westpac leading index shows an improvement on the month today the mood towards the Australian Dollar is likely to remain muted.

Brexit Worries Provoke Fresh Pound Volatility

Sentiment towards the Pound remained volatile on Tuesday as markets continued to weigh up the situation surrounding Brexit. As Theresa May agreed to step up government planning for a no-deal Brexit investors saw limited cause for confidence. Although the odds still point towards the UK leaving the EU with some manner of deal in place the lingering air of uncertainty continues to weigh on GBP exchange rates.

This evening’s UK consumer price index data could put further pressure on the Pound, with forecasts pointing towards a dip in the headline inflation rate.

Weakening Business Confidence Weighs on Euro Demand

December’s German IFO business sentiment survey failed to offer EUR exchange rates any support as confidence continued to deteriorate. As all of the component indexes saw a decline, reflecting a souring mood towards both current conditions and the economic outlook, this left the Euro on a weaker footing. With confidence in the underlying health of the Eurozone’s powerhouse economy still limited and global conditions still looking challenging the single currency lost further ground against its rivals.

Any easing in November’s German producer price index could dent the Euro, with signs of weaker inflation further diminishing the prospect of European Central Bank (ECB) monetary tightening.

US Dollar Fails to Benefit from Construction Rebound

A surprisingly strong rebound in US housing starts and building permits for November failed to shore up the US Dollar overnight. Although the construction sector showed fresh signs of strength, encouraging greater confidence in the overall economic picture, USD exchange rates remained biased to the downside. Markets were spooked by the latest commentary from the Trump administration, which launched a fresh broadside at the Federal Reserve’s plans to raise interest rates again.

As anticipation mounts for the December Fed policy announcement the appeal of the US Dollar is likely to remain muted.

Surprise Manufacturing Sales Contraction Dents Canadian Dollar

October’s Canadian manufacturing sales data failed to offer any support to the Canadian Dollar, showing a surprise contraction on the month. This gave policymakers fresh reason to doubt the resilience of the domestic economy, further limiting the prospect of future Bank of Canada (BOC) monetary tightening. As oil prices extended their slump this put further pressure on CAD exchange rates, with prices slipping to a fresh fifteen-month low on oversupply concerns.

A disappointing showing from tonight’s Canadian inflation data could see CAD exchange rates sliding lower still.

Rising Dairy Prices Shore up New Zealand Dollar

A second consecutive uptick in prices at the Global Dairy Trade helped to send NZD exchange rates trending higher as confidence in the outlook of the dairy sector improved. Demand for the New Zealand Dollar also picked up on the back of a solid improvement in December’s ANZ activity outlook index, which strengthened from 7.6 to 13.6. Even with market risk appetite generally limited by wider economic worries NZD exchange rates continued to push higher.

However, if the fourth quarter Westpac consumer confidence index fails to impress this could drag the New Zealand Dollar down today.

Data Released

December 19th 07:00 NZD Westpac Consumer Confidence (Q4) 
December 19th 10:30 AUD Westpac Leading Index (MoM) (NOV) 
December 19th 18:00 EUR German Producer Price Index (YoY) (NOV) 3.1%
December 19th 20:30 GBP Consumer Price Index (YoY) (NOV) 2.3%
December 20th 00:30 CAD Consumer Price Index (YoY) (NOV) 1.8%
December 20th 06:00 USD Federal Open Market Committee Rate Decision 2.50%

Post by TorFX

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