Stagnant September UK Growth Drags Down Pound

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  • Weaker Lending Data Weighs on Australian Dollar – Impact of RBA statement proves limited
  • Pound Softens as UK Growth Stagnates for Two Consecutive Months – Worries over Brexit continue to weigh on domestic outlook
  • Italian Finance Minister Fuels Budget Concerns – Fresh confrontation between Italian and EU officials looks likely
  • Solid Growth Indicator Boosts New Zealand Dollar – Signs of economic resilience encourage NZD exchange rates

Australian Dollar Trends Lower as Lending Falls

The impact of the Reserve Bank of Australia’s (RBA) latest Statement of Monetary Policy proved limited on Friday, with the report offering no surprises in the wake of the week’s policy meeting. As a result, the Australian Dollar came under pressure thanks to the continued contraction in domestic home loans and investment lending data. With Australian borrowing still in decline confidence in the economic outlook dimmed, keeping AUD exchange rates on a softer footing.

If market risk appetite generally picks up today, though, the mood towards the Australian Dollar could improve.

Underlying Weakness in UK Growth Dents Pound

While the headline third quarter UK gross domestic product picked up as forecast this failed to give the Pound a boost. Although growth accelerated to 0.6% on the quarter this was driven by the strength of July’s data, with both the August and September figures showing a stagnation in growth. As this adds to expectations for a weaker fourth quarter GDP this weighed on demand for the Pound ahead of the weekend.

As investors continue to weigh up the odds of a no-deal Brexit GBP exchange rates could struggle to regain any significant ground today.

Italian Budget Dispute Drives Euro Weakness

Comments from Italian finance minister Giovanni Tria did nothing to ease market concerns over the ongoing budget dispute. As Tria continued to stand by his government’s controversial 2019 budget proposal this set the stage for another confrontation with the European Commission. With Italy looking set to offer no compromise by Tuesday’s deadline the row could escalate further, to the detriment of the Euro. The prospect of fresh political volatility within the Eurozone continues to limit the potential of EUR exchange rates.

Ahead of tomorrow’s German inflation data the Euro may not find any particular support.

Better-Than-Expected Consumer Sentiment Buoys US Dollar

USD exchange rates were encouraged to recover some ground ahead of the weekend after November’s University of Michigan consumer sentiment index bettered forecast. Although the index still saw a dip on the month sentiment largely held up, in spite of election jitters and trade concerns. This suggests that the US economy remains in a solid state, giving investors incentive to buy back into the US Dollar. Better-than-expected producer price index figures also bolstered demand for USD, adding to the case for a December interest rate hike.

With data thin on the ground at the start of the week the US Dollar may return to a weaker footing if a sense of risk appetite prevails.

Oil Price Slump Continues to Drive Canadian Dollar Weakness

After the Federal Reserve boosted the odds of a December rate hike the Canadian Dollar came under fresh pressure. With the Bank of Canada (BOC) looking set to take a more cautious approach to monetary policy in the months ahead CAD exchange rates trended lower on the prospect of increased policy divergence. The softer oil market continued to drag on the Canadian Dollar, meanwhile, as Brent crude came closer to breaking below the psychologically important level of US$70 per barrel.

As long as oil prices continue to slide on the back of global oversupply concerns the appeal of the Canadian Dollar is likely to remain limited.

New Zealand Dollar Extends Gains on Signs of Stronger Growth

October’s ANZ truckometer reading offered the New Zealand Dollar fresh encouragement, with the index surging 4.6% on the month. This increase in traffic volumes suggests that economic activity picked up sharply, bolstering confidence in the domestic outlook. As this positive showing suggests that New Zealand started the fourth quarter on a stronger footing NZD exchange rates naturally trended higher on Friday.

A weaker level of retail card spending may take some of the wind out of the New Zealand Dollar’s sails today, however.

Data Released

November 12th 08:45 NZD Retail Card Spending (MoM) (OCT) 0.6%

Post by TorFX

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