Underwhelming Inflation Data Leaves New Zealand Dollar Weaker

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Headlines

  • Australian Dollar Capitalised on US Dollar Weakness – Worries over increasing US protectionism fail to dent AUD exchange rates
  • Disappointing NZ Inflation Prompted New Zealand Dollar Slide – Odds of RBNZ tightening continue to diminish
  • Euro Rallied as ECB Sounded Optimistic Note on Inflation – Chances of imminent ECB action remain low
  • Weak Retail Sales Weighed on CAD – Confidence in Canadian outlook deteriorates

Australian Dollar

With no fresh domestic data to influence sentiment the Australian Dollar lacked any particular direction on Thursday. While wider market concerns over the prospect of a trade war between the US and China continued to mount, though, the negative impact on AUD exchange rates was somewhat limited. The weakness of the US Dollar is still benefitting the ‘Aussie’, with the antipodean currency encouraged by the prospect of US policy actively favouring a weaker USD.

Even so, AUD exchange rates are vulnerable to downside pressure if tonight’s raft of US data betters forecast.

Sterling

Weaker-than-expected CBI reported retail sales failed to take the wind out of the Pound’s sails overnight. Even though signs point towards consumers continuing to rein in their spending as inflation bites, to the detriment of the wider economy, the mood towards Sterling remained generally positive. As investors continued to bet on the chances of the Bank of England (BoE) raising interest rates again in the near future the downside potential of GBP exchange rates remained limited.

The optimism of the Pound could falter, however, if the fourth quarter UK gross domestic product shows a loss of momentum.

Euro

While the European Central Bank (ECB) left interest rates on hold at its January policy meeting, as anticipated, the Euro surged higher. This was due to the more optimistic nature of ECB President Mario Draghi’s comments on the subject of inflation. As Draghi demonstrated greater confidence in the likelihood of inflationary pressure rising towards its target rate in the months ahead markets were encouraged to favour the single currency. Though any policy action remains a distant prospect this was not enough to dampen the bullish mood of EUR exchange rates.

Commentary from fellow ECB policymaker Benoît Cœuré will be in focus tonight, potentially offering further support to the Euro.

US Dollar

A sharp slump in US existing home sales gave investors further incentive to pile out of the US Dollar, helping to accelerate the USD exchange rate sell-off. The Trump administration continued to weaken the ‘Greenback’, meanwhile, thanks to its persistent focus on protectionism and belligerent policy message. With the latest jobless claims data proving rather mixed in nature there was very little to prevent USD exchange rates sliding further as confidence in the US outlook diminished.

Unless the annualised fourth quarter gross domestic product or durable goods orders figure better forecast the US Dollar is likely to remain out of favour heading into the weekend.

Canadian Dollar

November’s Canadian retail sales proved unexpectedly disappointing, with sales growth slowing from 1.6% to just 0.2% on the month. Naturally this undermined confidence in the domestic outlook, leaving the Canadian Dollar on a generally weaker footing in spite of rising demand for higher-yielding assets. Worries over NAFTA remained a significant drag on CAD exchange rates, meanwhile, as the US continued to ramp up its belligerent trade rhetoric.

With forecasts pointing towards a dip in the latest Canadian consumer price index figures the Canadian Dollar looks set to lose further ground tonight.

New Zealand Dollar

Markets were not impressed by the fourth quarter New Zealand consumer price index data, which fell short of forecast on both the quarter and the year. This added to concerns that inflationary pressure within the domestic economy is failing to pick up, increasing the odds of the Reserve Bank of New Zealand (RBNZ) leaving interest rates on hold for the foreseeable future. As a result, the New Zealand Dollar slumped sharply.

Any softening in market risk appetite could see NZD exchange rates trend lower over the course of the day.

Data Released

January 26th 19:30 GBP Gross Domestic Product (YoY) (4Q) 1.4%
January 26th 23:30 CAD Consumer Price Index (YoY) (DEC) 1.9%
January 26th 23:30 USD Durable Goods Orders (DEC) 0.9%
January 26th 23:30 USD Gross Domestic Product Annualised (QoQ) (4Q) 3.0%

Post by TorFX

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