Underwhelming Inflation Data Left Australian Dollar on Back Foot

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Headlines

  • Australian Consumer Price Index Disappointed Forecast – ‘Aussie’ muted after inflation failed to pick up
  • Weaker Levels of UK Government Borrowing Boosted Pound Demand – Brexit-based uncertainty continues to cast shadow over GBP exchange rates
  • Euro Remained Soft as German Business Sentiment Deteriorated – Single currency traction limited ahead of ECB meeting
  • Strengthening Consumer Confidence Failed to Extend US Dollar Gains – Positive US data not enough to support further gains

Australian Dollar

As the first quarter Australian consumer price index data fell short of forecast this left AUD exchange rates on a weaker footing. With the headline inflation rate holding steady at 1.9% on the year the appeal of the ‘Aussie’ was limited, especially as the quarterly figure saw a moderate dip. In the absence of any fresh uptick in price pressures the Reserve Bank of Australia (RBA) looks set to maintain a neutral policy bias for some time to come.

In the absence of any domestic data today the Australian Dollar could struggle to find any particular rallying point.

Sterling

Demand for the Pound picked up during Tuesday’s European session, even as uncertainties over Brexit persist. Investors were more interested by the positive nature of the latest UK public sector net borrowing figure, with government borrowing found to have fallen to its lowest level since 2007 in the last financial year. Coupled with the optimistic nature of the latest CBI industrial trends survey this gave GBP exchange rates a fresh boost.

Even so, the continued lack of clarity over whether the UK will remain a member of the customs union after Brexit should limit the upside potential of Sterling today.

Euro

Markets were not overly impressed with April’s German IFO business sentiment survey, which proved less positive than forecast. Particularly concerning was the sharper decline in the expectations index, which dipped from 100.1 to 98.7. This suggests that the outlook for the Eurozone’s powerhouse economy is weakening, potentially leading to a further loss of growth momentum over the coming months. As a result the European Central Bank (ECB) is expected to remain more bearish in outlook.

Ahead of Thursday’s ECB policy meeting the appeal of the Euro is forecast to remain muted.

US Dollar

While the US consumer confidence index for April defied expectations of a decline, instead strengthening from 127.7 to 128.7, this failed to encourage any particular US Dollar bullishness. Even though the world’s largest economy continues to demonstrate signs of strength USD exchange rates were unable to push higher overnight. After its recent strong run the US Dollar ran out of steam, with markets already pricing in high odds of the Federal Reserve adopting a more hawkish policy approach.

A solid showing from this evening’s MBA mortgage applications figure may help to keep a floor under USD exchange rates, though.

Canadian Dollar

Confidence in the Canadian Dollar deteriorated markedly in the wake of comments from Bank of Canada (BOC) Governor Stephen Poloz. As the Governor indicated that the central bank is in no rush to raise interest rates, even in response to higher inflation, this left CAD exchange rates under pressure. However, as Brent crude continued to trend comfortably above the US$74 per barrel mark this helped to limit the Canadian Dollar’s weakness.

As long as the oil market maintains a positive mood today the downside potential of CAD exchange rates is likely to be muted.

New Zealand Dollar

NZD exchange rates extended their losses yesterday, with investors seeing no incentive to favour the higher-yielding currency at this stage. With market risk appetite generally muted on Tuesday, in part thanks to confidence in the prospect of more aggressive Fed monetary tightening, the New Zealand Dollar remained under pressure.

With New Zealand data thin on the ground this week the potential for any NZD exchange rate rally looks rather weak.

Data Released

April 25th 21:00 USD MBA Mortgage Applications (APR 20)

Post by TorFX

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