Underwhelming UK Budget Leaves Pound on Downtrend

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  • Muted Risk Appetite Continues to Limit AUD Exchange Rates – Building approvals rebound may encourage boost today
  • Euro Softens After Chancellor Angela Merkel Announces Decision Not to Stand for Re-Election – Doubts over the political future of the Eurozone grow
  • Pound Shrugs Off UK Budget Announcement – Markets remain wary of potential impact of no-deal Brexit
  • Signs of Steady Inflationary Pressure Benefit US Dollar – Federal Reserve remains set for December interest rate hike

Market Jitters Limit Australian Dollar Demand

The Australian Dollar continued to struggle yesterday, lacking the support of any fresh domestic data. With global markets still in a jittery state and with risk appetite limited there was little reason to buy into the ‘Aussie’ at the start of the week. Signs of robust US inflation also put pressure on AUD exchange rates as the odds of a December interest rate hike from the Federal Reserve remain high.

A moderate rebound in building approvals could offer the Australian Dollar a rallying point today, even though confidence in the domestic outlook remains muted.

UK Budget Fails to Encourage Pound Strength

Philip Hammond’s latest budget failed to give the Pound a boost overnight, with markets largely unimpressed by his announced spending plans. Even though Downing Street indicated that the budget commitments will be fulfilled whether there is a Brexit deal or not investors remained sceptical. This left GBP exchange rates in a bearish mood, with confidence in the economic outlook already dented by underwhelming consumer credit data. As growth in consumer credit slowed to its lowest level since June 2015 demand for the Pound failed to pick up.

If October’s CBI reported retail sales index fails to impress this could see the Pound shed further ground this evening.

Euro Weakens After German Chancellor Merkel Signals Departure

After both parties in the German governing coalition saw significant losses in a regional election over the weekend the mood towards the Euro soured. Investors were further discouraged by Chancellor Angela Merkel’s announcement that she will not run for re-election in 2021, also stepping aside as chairwoman of the CDU. This marks the end of an era for European politics as Merkel has served as German chancellor since 2005. Adding to the sense of political uncertainty hanging over the Eurozone, this left EUR exchange rates on the back foot.

Today is likely to be another volatile day for the single currency thanks to the release of Eurozone gross domestic product and German inflation figures.

Signs Point Towards Robust US Inflation

September’s US personal consumption expenditure data came in largely in line with forecast, with the monthly core reading also offering an upside surprise. All in all, this points towards sustained inflationary pressure within the US economy, giving the Federal Reserve further incentive to raise interest rates. An unexpected improvement in the latest Dallas Fed manufacturing activity index gave USD exchange rates an additional boost overnight, suggesting a more robust economic outlook.

However, the US Dollar could come under renewed pressure tonight if October’s US consumer confidence index weakens as anticipated.

Softer Oil Prices Limit Canadian Dollar Support

The general sense of market risk aversion kept the Canadian Dollar under pressure at the start of the week. Demand for the commodity-correlated CAD was also limited by a persistent weakness in oil prices, with Brent crude still trending below US$78 per barrel. As a variety of factors look set to keep markets in a bearish mood in the days ahead the potential for a CAD exchange rate rally appears rather limited.

Ahead of Wednesday’s gross domestic product data the Canadian Dollar is likely to remain on a weaker footing.

Lack of Risk Appetite Fails to Keep New Zealand Dollar on Back Foot

While investor risk appetite looked largely limited yesterday this was not enough to keep the New Zealand Dollar under pressure. NZD exchange rates trended higher thanks to the weakness of rivals, continuing to unwind the losses seen in recent weeks. However, these gains remain distinctly fragile thanks to lingering worries over the outlook of the New Zealand economy.

In the absence of any domestic data the New Zealand Dollar may struggle to hold onto an uptrend for long today.

Data Released

October 30th 11:30 AUD Building Approvals (YoY) (SEP) -9.0%
October 30th 21:00 EUR Eurozone Gross Domestic Product (YoY) (Q3) 1.8%
October 30th 22:00 GBP CBI Reported Sales (OCT) 20
October 31st 00:00 EUR German Consumer Price Index (YoY) (OCT) 2.4%
October 31st 01:00 USD Consumer Confidence Index (OCT) 136

Post by TorFX

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