Surprisingly Strong Labour Market Boosts New Zealand Dollar

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  • Australian Dollar Shrugs Off Continued Weakening of Construction Sector – Risk appetite shores up AUD exchange rates
  • Unexpectedly Positive New Zealand Labour Market Data Boosts NZD – Fresh volatility forecast on RBNZ policy announcement
  • US Dollar Trends Lower After Midterm Election Results – Political gridlock limits odds of further fiscal stimulus
  • Canadian Dollar Fails to Benefit from Business Confidence Surge – Weak housing data may add to CAD bearishness

Construction Sector Contraction Unable to Dampen Australian Dollar Demand

October’s Australian construction PMI proved disappointing as the index slumped from 49.3 to 46.4, indicating that the sector has fallen further into a state of contraction. This weaker showing did not encourage any particular sense of confidence in the domestic outlook, although construction is not the economy’s main engine of growth. AUD exchange rates remained on a positive footing, however, as markets reacted to the results of the US midterm elections.

In the absence of any domestic data the Australian Dollar looks vulnerable to any fresh shift in market sentiment today.

Pound Muted After Underwhelming House Price Data

The latest Halifax house price index data did not paint the most encouraging picture for investors, with house price growth slowing to its lowest level in five-years in the three months to October. As the UK economy continues to demonstrate signs of weakening the appeal of the Pound diminished once again. Even so, as the monthly house price index showed a modest uptick this helped to limit the negative impact of the data on GBP exchange rates.

If the RICS house price balance also shows weakness, however, this could see the Pound losing greater ground today.

Euro Under Pressure as Eurozone Retail Sales Stall

Confidence in the outlook of the Eurozone economy remained muted yesterday thanks to a surprise stagnation in retail sales. As sales failed to grow on the month in September this gave investors fresh incentive to sell out of the single currency. The decline in consumer spending suggests that higher levels of inflation are having a detrimental impact on the Eurozone economy, increasing the pressure on the European Central Bank (ECB) to act. However, with no interest rate hike likely in the near future sales look set to weaken further in the months ahead.

A stronger showing from Germany’s latest trade data may encourage EUR exchange rates to push higher this afternoon.

US Political Deadlock Weighs on US Dollar

As the Democrats gained control of the House of Representatives in the US midterm elections this left the US Dollar biased to the downside. The prospect of political deadlock did not give USD exchange rates any encouragement, with further tax cuts and increased spending now seemingly off the table. On the other hand, the risk of an escalation in US-China trade tensions increased as domestic defeat is likely to spur the Trump administration to step up its protectionist trade rhetoric.

As anticipation mounts for tomorrow’s Federal Open Market Committee (FOMC) policy announcement the US Dollar may struggle to recover.

Business Confidence Rebound Fails to Benefit Canadian Dollar

An unexpectedly strong rebound in October’s Ivey PMI was not enough to shore up the Canadian Dollar last night. Even though business confidence surged from 50.4 to 61.8, almost entirely reversing September’s decline, this failed to encourage CAD exchange rates to trend higher. Worries remain over the underlying health of the domestic economy, limiting the appeal of the Canadian Dollar. With oil prices still under pressure the mood towards the commodity-correlated CAD remained generally muted.

A weaker showing from tonight’s new housing price index may add to the bearishness of the Canadian Dollar.

Strong Labour Market Data Boosts New Zealand Dollar Ahead of RBNZ

The third quarter New Zealand labour market data encouraged NZD exchange rates to strengthen yesterday as the unemployment rate improved further than forecast. As the unemployment rate fell from 4.4% to 3.9% this bolstered confidence in the domestic outlook and further dented the case for looser monetary policy. A sharp uptick in average hourly earnings added to the positive picture, helping to set the New Zealand Dollar on a stronger footing.

However, any signs of dovishness from the Reserve Bank of New Zealand (RBNZ) this morning could see NZD exchange rates trending lower once again.

Data Released

November 8th 07:00 NZD Reserve Bank of New Zealand Rate Decision 1.75%
November 8th 11:01 GBP RICS House Price Balance (OCT) -2.0%
November 8th 18:00 EUR German Trade Balance (SEP) 20 billion
November 9th 00:30 CAD New Housing Price Index (YoY) (SEP) 0.2%
November 9th 06:00 USD Federal Open Market Committee Rate Decision 2.25%

Post by TorFX

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