US Dollar Pushes Higher Ahead of Fed Minutes

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Headlines

  • AUD Dented By Cautious RBA Outlook on Wages and Inflation – Rallying point possible on Westpac leading index
  • Weaker ZEW Economic Sentiment Surveys Softened Euro Exchange Rates – Solid manufacturing and services PMIs could boost single currency
  • US Dollar Recovered Ground Ahead of FOMC Minutes – Odds of imminent interest rate hike remain high
  • GBP Exchange Rates Surged Higher on Soft Brexit Hopes – Report suggests UK could retain ‘privileged’ access to single market

Australian Dollar

There was little surprise as the Reserve Bank of Australia’s (RBA) February meeting minutes reflected a rather cautious outlook on monetary policy. While the central bank still expressed some confidence in the economic outlook concerns over weak wage growth and inflation remained. With the RBA looking set to leave interest rates on hold for the foreseeable future there was little in the way of support for the Australian Dollar yesterday.

Even so, an uptick in the Westpac leading index could encourage AUD exchange rates to recover some ground this morning.

Sterling

A report published by Business Insider encouraged the Pound to rally sharply on Tuesday, with the European Parliament stated to be drawing up plans to give the UK ‘privileged’ access to the single market after Brexit. As this would represent a significant softening in the EU’s approach to negotiations, providing the report proves founded, the mood towards Sterling naturally improved. Hopes that the UK could still avoid a hard Brexit scenario helped to overshadow the disappointing nature of the latest CBI industrial trends data.

This evening’s UK wage growth data may put a dampener on GBP exchange rates, though, if average weekly earnings fail to pick up.

Euro

With the latest ZEW economic sentiment surveys pointing towards a decline in domestic confidence the Euro came under fresh pressure. Even though the index remains in solid territory investors were not encouraged by the monthly decline, given that the German political situation is not yet resolved. A sharp downward revision to February’s Eurozone consumer confidence index also put pressure on the single currency, suggesting that the domestic outlook is not quite as robust as hoped.

However, a solid raft of Eurozone manufacturing and services PMIs could offer the Euro cause for confidence today.

US Dollar

Demand for the US Dollar continued to pick up overnight, helping to boost the ‘Greenback’ away from its recent lows. While underlying support for USD exchange rates still looks relatively weak at this juncture investors were encouraged to buy back into the US Dollar thanks to its softer state. A lack of fresh domestic data did little to hamper its recovery, with the wider sense of market risk appetite still somewhat limited.

Ahead of tomorrow’s release of the Federal Open Market Committee (FOMC) meeting minutes, however, the US Dollar may struggle to hold onto an uptrend.

Canadian Dollar

The negative news for the Canadian economy kept coming last night, with December’s wholesale trade sales figure showing a surprise -0.5% contraction on the month. Added to the disappointing nature of other recent Canadian data this left CAD exchange rates on a weaker footing, further undermining the prospect of any return to hawkishness for the Bank of Canada (BOC). With oil prices struggling to maintain any positive momentum the Canadian Dollar naturally slumped.

Unless market risk appetite picks up significantly CAD exchange rates are unlikely to find any particular support in the near term.

New Zealand Dollar

Even though the New Zealand producer price index data offered markets no real cause for excitement NZD exchange rates were still able to make some gains on Tuesday. Once again the New Zealand Dollar benefitted from the relative weakness of its commodity-correlated cousins, strengthening against both the Australian and Canadian Dollars. However, demand for the ‘Kiwi’ remained generally limited, with the latest Global Dairy Trade auction proving underwhelming.

In the absence of any fresh domestic data today NZD exchange rates are likely to remain in a somewhat bearish mood.

Data Released

February 21st 09:30 AUD Westpac Leading Index (MoM) (JAN)
February 21st 19:00 EUR Eurozone Manufacturing PMI (FEB P) 59.2
February 21st 19:00 EUR Eurozone Services PMI (FEB P) 57.6
February 21st 19:30 GBP Average Weekly Earnings (3M/YoY) (DEC) 2.5%
February 22nd 05:00 USD Federal Open Market Committee Meeting Minutes (31 JAN)

Post by TorFX

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