US Dollar Stumbles After Producer Price Index Slowdown

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  • Declining Consumer Confidence Limits AUD Upside – Australian Dollar vulnerable to labour market data
  • Pound Under Pressure Ahead of BoE Meeting – Shifting Brexit speculation continues to dominate GBP outlook
  • Surprise Contraction in Eurozone Industrial Production Dents Euro – Confidence in Eurozone outlook deteriorates further
  • USD Exchange Rates Soften on Underwhelming Producer Price Index Data – Signs point towards easing in inflationary pressure

Australian Dollar Wobbles as Consumer Confidence Slips Lower

The mood towards the Australian Dollar remained rather dim on Wednesday as the latest Westpac consumer confidence index disappointed. With the index sliding -3.0% on the month this further undermined optimism in the outlook of the Australian economy, suggesting consumers are less likely to spend. However, AUD exchange rates were able to regain some ground overnight thanks to the weaker nature of August’s US producer price index data.

AUD exchange rates look vulnerable this morning with the release of August’s labour market data as investors remain wary of a fresh uptick in unemployment.

Pound Lacks Momentum Ahead of BoE Decision

GBP exchange rates struggled to find any traction yesterday in the absence of fresh domestic data. As talk of Conservative MPs moving to oust Theresa May continued to build this limited the appeal of the Pound, especially as earlier Brexit-based optimism faded. Comments from European Commission President Jean-Claude Juncker did not encourage particular confidence, as he once again dismissed May’s Chequers proposals.

With no change expected from the Bank of England (BoE) at today’s policy meeting Sterling could well fall further out of favour with markets over the course of the day.

Euro Under Pressure as Eurozone Industrial Production Contracts

In another discouraging development for the single currency the Eurozone’s industrial production figures fell short of forecast in July. Investors were unimpressed to find that production had contracted -0.1% on the year, defying expectations for solid growth of 1.0%. This offers fresh evidence of the negative impact that global trade tensions have placed on the currency union, putting EUR exchange rates under renewed pressure.

Unless European Central Bank (ECB) President Mario Draghi surprises investors with a more optimistic tone in comments to the press this evening the potential for Euro gains looks limited.

Weaker Producer Price Index Data Weighs Down US Dollar

The confidence of the US Dollar was dented overnight as August’s producer price index data surprised to the downside. As price pressures eased from 3.3% to 2.8% on the year this suggested that inflation within the world’s largest economy is losing steam. While this is unlikely to dissuade the Federal Reserve from raising interest rates at its next policy meeting USD exchange rates still trended lower in the wake of the data.

A similarly weak showing from the corresponding consumer price index figures may encourage the US Dollar to extend its losses further tonight.

Falling US Crude Inventories Boost Canadian Dollar Exchange Rates

Oil prices bounced higher during Wednesday’s European session after the latest US crude oil inventories data showed a larger-than-expected drawdown. As stockpiles declined by -5.3 million barrels on the week this gave the oil market and the commodity-correlated Canadian Dollar a boost. As Brent crude broke back above the psychologically important US$80 per barrel mark in the wake of the figures this helped to shore up CAD exchange rates further.

Another weak new housing price index reading could temper the gains of CAD exchange rates this evening, however.

New Zealand Dollar Looks For Support From Inflation Data

NZD exchange rates were able to recover a limited degree of ground yesterday, benefitting from improved market sentiment and a weakening US Dollar. However, the strength of the New Zealand Dollar remained generally limited thanks to a lack of confidence in the domestic outlook and the fragility of global trade relations.

A greater rallying point could be in store for NZD exchange rates this morning if August’s food price index points towards increased inflationary pressure, as this would give the Reserve Bank of New Zealand (RBNZ) less cause for dovishness.

Data Released

September 13th 08:45 NZD Food Price Index (MoM) (AUG) 
September 13th 11:30 AUD Unemployment Rate (AUG) 5.3%
September 13th 21:00 GBP Bank of England Rate Decision 0.75%
September 13th 21:45 EUR European Central Bank Rate Decision 0.00%
September 13th 22:30 CAD New Housing Price Index (MoM) (JUL) 0.1%
September 13th 22:30 USD Consumer Price Index (YoY) (AUG) 2.8%

Post by TorFX

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