Signs of RBA Optimism Not Enough to Boost Australian Dollar

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  • RBA Continues to Expect Gradual Economic Improvement – Australian Dollar weakens ahead of third quarter GDP data
  • Solid UK Construction PMI Prompts Pound Recovery – GBP exchange rates vulnerable to disappointing service sector reading
  • Euro Shrugs Off Signs of Rising Eurozone Inflation – Confidence in Eurozone outlook remains muted
  • Oil Rally Fails to Boost Canadian Dollar – Investors brace for Bank of Canada policy decision

RBA Optimism Encourages Limited Australian Dollar Demand

Support for the Australian Dollar proved limited as the initial optimism over the weekend’s US-China meeting began to fade. Investors took little encouragement from the Reserve Bank of Australia’s (RBA) latest policy meeting, with interest rates remaining on hold once again. Although policymakers expressed continued optimism in the domestic outlook it was still stressed that the process of improvement is likely to be ‘gradual’. This left AUD exchange rates on a weaker footing yesterday, even in the face of a softer US Dollar.

Signs of a slowdown in the third quarter Australian gross domestic product could see the Australian Dollar slump further this morning.

Resilient UK Construction Sector Supports Pound

November’s UK construction PMI offered the Pound a boost as the headline index picked up from 53.2 to 53.4, signalling an acceleration in sector growth. Business confidence saw a particular improvement on the month, rebounding from October’s near six-month low. However, as the construction sector only accounts for a small fraction of the UK gross domestic product the impact of the data ultimately proved limited. As MPs began debating Theresa May’s Brexit plan, meanwhile, this put fresh pressure on GBP exchange rates.

However, a similarly positive showing from this evening’s UK services PMI could encourage the Pound to rally once again.

Euro Falters in Spite of Stronger Eurozone Producer Prices

Although the Eurozone producer price index strengthened in October this failed to generate much traction for the Euro. While the solid uptick suggests that inflationary pressure is continuing to build within the currency union investors still expect the European Central Bank (ECB) to leave interest rates on hold for some time to come. Increasing political tensions also limited the appeal of the Euro after the Eurogroup backed the European Commission’s rejection of the 2019 Italian budget proposal.

If October’s Eurozone retail sales show a solid improvement on the month this may give EUR exchange rates a rallying point.

US Dollar Struggles to Shake Off Market Risk Appetite

Growing market doubts over the future pace of Federal Reserve interest rate hikes helped to keep the US Dollar under pressure overnight. While a December rate hike remains nailed on there are doubts that policymakers will continue to pursue an aggressive pace of tightening in 2019. As investors continue to bet on the prospect of the US and China agreeing a compromise that averts the imposition of fresh tariffs the appeal of the safe-haven US Dollar has naturally diminished.

Even so, the ISM non-manufacturing composite index could shore up USD exchange rates overnight if the US economy continues to demonstrate robust growth.

Canadian Dollar Fails to Capitalise on Rising Oil Prices

While the increasing prospect of a fresh OPEC-led production cut buoyed oil markets this was not enough to boost the Canadian Dollar. Even with Brent crude trending in the region of US$63 per barrel the commodity-correlated currency failed to benefit. With anticipation mounting ahead of the Bank of Canada’s policy decision tonight investors have been inclined to adopt a more cautious view of the Canadian Dollar, given the weakness of recent domestic data.

If the BOC adopts a more dovish tone at its December policy meeting this could weigh heavily on CAD exchange rates.

Surprise Dairy Price Bounce Encourages New Zealand Dollar Gains

After a long run of declines the Global Dairy Trade auction finally saw an uptick in prices with an increase of 2.2% on the fortnight. This positive development offered a boost to the New Zealand Dollar, encouraging hopes that the dairy industry is starting to pick back up. The general sense of market risk appetite gave NZD exchange rates further support, meanwhile.

The New Zealand Dollar may struggle to hold onto its gains this morning unless the ANZ commodity price index shows a rebound on the month.

Data Released

December 5th 11:00 NZD ANZ Commodity Price Index (NOV) 
December 5th 11:30 AUD Gross Domestic Product (YoY) (3Q) 3.3%
December 5th 20:30 GBP Services PMI (NOV) 52.5
December 5th 21:00 EUR Eurozone Retail Sales (YoY) (OCT) 2.0%
December 6th 02:00 CAD Bank of Canada Rate Decision 1.75%
December 6th 02:00 USD ISM Non-Manufacturing Composite Index (NOV) 59

Post by TorFX

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