Strong RBNZ Inflation Expectations Lift New Zealand Dollar

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Headlines

  • Weakening Westpac Consumer Confidence Weighed on Australian Dollar – Further losses possible on underwhelming labour market data
  • US Dollar Failed to Benefit from Stronger Consumer Price Index – USD exchange rates struggle to find support
  • Bullish Eurozone GDP Failed to Boost Euro Exchange Rates – Widened trade surplus may shore up single currency
  • NZD Surged Higher on Rising RBNZ 2-Year Inflation Expectation – Signs of stronger inflationary pressure drive up New Zealand Dollar

Australian Dollar

A sharp contraction in the Westpac consumer confidence index for February left the Australian Dollar on a weaker footing yesterday. Investors were not impressed to find that sentiment had softened on the month, reigniting concerns over the domestic outlook and encouraging further selling of the ‘Aussie’. Mounting jitters ahead of today’s labour market data also helped to keep AUD exchange rates on a downtrend overnight.

While the headline unemployment rate is forecast to hold steady at 5.5% the mood towards the Australian Dollar could deteriorate further if the corresponding participation rate proves weaker.

Sterling

Demand for the Pound remained somewhat muted on Wednesday, coming under fresh pressure thanks to the latest IMF assessment of the UK economy. As the IMF warned that the country needs to address its weak productivity problem, and maintained relatively bearish forecasts for growth, Sterling was pushed lower. Comments from Foreign Secretary Boris Johnson also failed to galvanise particular support for GBP exchange rates, with markets still unconvinced by his Brexit rhetoric.

In the absence of any UK data today Sterling remains vulnerable to downside pressure, particularly as markets continue to speculate about Brexit.

Euro

Although the Eurozone economy continued to demonstrate its strength, with the fourth quarter gross domestic product coming in on forecast, this was not enough to keep EUR exchange rates on a bullish trend. Despite the currency union carrying solid momentum forward into 2018 the impact of the positive GDP data quickly faded, with the European Central Bank (ECB) unlikely to alter its policy outlook any time soon. Confirmation that the German consumer price index contracted on the month in January also weighed on the Euro.

Any widening of December’s Eurozone trade surplus may help to shore up the single currency in the short term, however.

US Dollar

While the US consumer price index held steady on the year at 2.1% the appeal of the US Dollar remained rather limited. As the CPI is not the Federal Reserve’s preferred measure of inflationary pressure this was not seen to significantly impact the odds of the central bank imminently raising interest rates. On the other hand, a surprise contraction in January’s advance retail sales figure gave investors fresh incentive to pile out of USD exchange rates.

Tonight’s Philadelphia Fed business outlook is unlikely to offer the US Dollar any real rallying point, with the index expected to dip on the month.

Canadian Dollar

A modest recovery in the oil markets offered support to the Canadian Dollar overnight, even though it was unable to gain ground against its stronger rivals. With US crude oil inventories found to have seen a smaller build-up on the week than forecast Brent crude was prompted to break back above US$63 per barrel. Even so, confidence in the outlook of the Canadian economy remains relatively weak at this juncture.

Another robust showing from tonight’s Canadian existing home sales figure may give CAD exchange rates additional encouragement.

New Zealand Dollar

Confidence in the New Zealand Dollar picked up significantly yesterday, benefitting from signs of stronger domestic inflationary pressure. Both the January food price index and Reserve Bank of New Zealand (RBNZ) 2-year inflation expectation survey for the first quarter surprised to the upside. This suggests that inflation within the New Zealand economy is not quite as sluggish as previously thought, driving increased demand for the ‘Kiwi’.

However, NZD exchange rates may struggle to hold onto this bullishness today in the absence of any supportive domestic data.

Data Released

February 15th 10:30 AUD Unemployment Rate (JAN) 5.5%
February 15th 23:30 USD Philadelphia Fed Business Outlook (FEB) 21.6
February 16th 00:00 CAD Existing Home Sales (MoM) (JAN)

Post by TorFX

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