Soft Brexit Hopes Send Pound Exchange Rates Sharply Higher

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Headlines

  • Rising Credit Card Purchases Failed to Boost AUD Rates – Weak inflation to limit Australian Dollar demand
  • Pound Exchange Rates Leapt on Brexit News – Reports suggested that Spanish and Dutch finance ministers to push for softer Brexit
  • German Coalition Deal Supported Euro – Markets relieved by end to political uncertainty in Eurozone’s powerhouse economy
  • CAD Exchange Rates Struggled to Capitalise on Oil Bullishness – Brent crude climbed back above US$70 per barrel

Australian Dollar

While Australian credit card purchases picked up slightly in November this failed to boost AUD exchange rates. This latest piece of positive domestic data was eclipsed by a general decline in market risk appetite ahead of the weekend, with investors bracing for US inflation data. A weaker-than-expected rise in Chinese imports on the year in December also put the Australian Dollar under some pressure, suggesting that demand from the world’s second largest economy might be slowing.

Unless the TD Securities inflation gauge shows an uptick on the month the mood towards the ‘Aussie’ is likely to remain somewhat muted.

Sterling

Demand for the Pound rocketed during Friday’s European session after reports emerged suggesting that the Spanish and Dutch finance ministers are preparing to push for a softer form of Brexit. Naturally, this encouraged GBP exchange rates to surge, with markets greeting the prospect of the UK achieving a relatively close future trading relationship with the EU. While it remains to be seen whether this news will translate into negotiations, though, this was not enough to keep Sterling from trending higher.

Ahead of the release of the latest UK consumer price index data on Tuesday, however, the Pound may struggle to hold onto its gains.

Euro

As Angela Merkel’s CDU agreed a deal with the Social Democrats to form a new ‘grand coalition’ the Euro found fresh support. Markets had remained cautious over the potential for a fresh breakdown in German coalition talks, giving the single currency room for a relief rally once the news of a firm deal broke. Underlying support for EUR exchange rates remains strong at this juncture, with the bullish nature of recent Eurozone data giving investors little cause for nerves.

With forecasts pointing towards a widening of the Eurozone trade surplus this evening the downside potential of the Euro should remain limited.

US Dollar

December’s US consumer price index data proved to be something of a mixed bag, with core CPI unexpectedly picking up on the year even as the headline CPI figure dipped. As a result, the US Dollar remained on a generally weaker footing ahead of the weekend. Advance retail sales also disappointed, only showing growth of 0.4% on the month over the festive period. All in all, this gave USD exchange rates little in the way of encouragement.

In the absence of any fresh US data today the US Dollar is unlikely to find any particular support, especially if domestic political concerns continue to weigh on market sentiment.

Canadian Dollar

Although Brent crude hit a three-year high above US$70 per barrel it struggled to maintain this level for long, lacking the support to break higher. With markets still jittery over the prospect of an end to NAFTA the mood towards the Canadian Dollar remained rather muted, in spite of the renewed weakness of the US Dollar.

Another weak showing from the Canadian housing market could weigh on CAD exchange rates tonight if December’s existing home sales figure disappoints.

New Zealand Dollar

Even though New Zealand building permits showed a solid rebound of 10.8% on the month this failed to keep NZD exchange rates from returning to a downtrend on Friday. The price correction that carried the New Zealand Dollar higher over the course of the week also ran out of steam, although the ‘Kiwi’ remained on track to end the week on a gain.

An uptick in New Zealand food prices, however, could boost NZD exchange rates with hopes that inflationary pressure is picking up.

 Data Released

January 15th 07:45 NZD Food Prices (MoM) (DEC)
January 15th 10:00 AUD TD Securities Inflation (YoY) (DEC)
January 15th 20:00 EUR Eurozone Trade Balance (NOV) 28.2 billion
January 16th 00:00 CAD Existing Home Sales (MoM) (DEC)

Post by TorFX

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