Upbeat Outlook from RBA Kent Boosts Australian Dollar

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Headlines

  • ‘Aussie’ on strong form as RBA Kent hints at stronger inflation – Official claims markets underestimating risks of accelerating global growth
  • AUD/GBP makes strong gains on data strength – Pound weakens as think tanks respond to Spring Budget Statement forecasts
  • AUD/EUR climbs on further cautious Draghi comments – ECB President seems to be locking in limited monetary tightening after quantitative easing ends
  • US Dollar holds ground despite retail sales decline – Drop marks first time since 2012 that sales have fallen for three consecutive months

Australian Dollar

The Australian Dollar was left on strong form yesterday after numerous positive developments both domestically and internationally. Reserve Bank of Australia (RBA) official Christopher Kent commented that he believed markets may be under-pricing the likelihood of global economic growth accelerating. He also suggested that stronger global growth could push inflation higher; a hint that he expects Australian interest rates to rise in the medium term. Above-forecast industrial production data for China also helped improve appetite for the Australian Dollar, as it suggests Chinese manufacturers will be demanding more Australian iron ore than previously thought.

The March consumer inflation expectation figure is set for release this morning. If consumers’ long-term outlook on price growth is shown to have accelerated then the Australian Dollar could rise, as this would indicate inflationary pressures are likely to increase in the short or medium-term.

Sterling

The Australian Dollar to Pound Sterling exchange rate made solid gains yesterday, with the Pound weakened by responses to the forecasts unveiled in the recent Spring Budget Statement. Amongst the think tanks responding to the outlook from the Office for Budget Responsibility (OBR) was the Institute for Fiscal Studies (IFS), which claimed that Chancellor of the Exchequer Philip Hammond will need to scrape together an additional £14 billion from the 2019-20 fiscal year onwards just to avoid a decline in spending as a fraction of national income.

Euro

The Euro was on soft form yesterday and this allowed the Australian Dollar to gain half a percent. Eurozone industrial production figures for January disappointed, showing the monthly decline of twice the rate forecast, while year-on-year production slowed from 5.3% to 2.7%, significantly missing expectations of 4.4% growth. Additionally, European Central Bank (ECB) President Mario Draghi gave a speech in which he claimed interest rates in the Eurozone should rise at a measured pace. Observers were concerned that Draghi might be able to create such strong expectations of a sluggish rate of monetary tightening that even when he steps down in 2019 whoever replaces him will be unable to change the policy outlook for fear of causing market turbulence.

US Dollar

The US Dollar was largely on solid form yesterday, despite a disappointing set of retail sales figures, although the AUD/USD exchange rate was still able to make mild gains. US advance retail sales figures for February showed a surprise decline of -0.1% month-on-month, marking the first time since 2012 that retail sales have declined for three months in a row. However, as it is only a week to the anticipated interest rate hike from the Federal Open Market Committee (FOMC) markets were not too perturbed by the data.

US initial and continuing jobless claims figures may create some volatility for the US Dollar today, although markets may find themselves instead looking ahead to next week’s monetary policy decisions.

Canadian Dollar

The AUD/CAD exchange rate made solid gains yesterday, despite the Canadian Dollar being on strong form versus some of its other major peers. Demand for the Canadian Dollar was somewhat weakened by the latest US crude oil inventories figures, which showed that stockpiles increased by over twofold the estimate of 2.5 million barrels. This weakened the outlook for demand in the short-term, which pushed oil prices down over half a percent.

Canadian existing home sales figures for February will be published late tonight.

New Zealand Dollar

The New Zealand Dollar was largely on soft form yesterday, allowing the Australian Dollar to rise against it as markets awaited this morning’s fourth-quarter GDP figures. The AUD/NZD exchange rate could slump when the figures are released, as forecasts are for quarter-on-quarter growth to accelerate from 0.6% to 0.8% and year-on-year growth to accelerate from 2.7% to 3.1%.

Data Released

March 15th 07.45 NZD Gross Domestic Product (YoY) (4Q) 3.1%
March 15th 10.00 AUD Consumer Inflation Expectation (Mar)
March 15th 22.30 USD Initial Jobless Claims (Mar 10) 228,000
March 15th 23.00 CAD Existing Home Sales (MoM) (Feb)

Post by TorFX

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