Weakening Inflation Outlook Leaves Australian Dollar on Back Foot

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  • Australian Dollar Trends Lower as Inflation Gauge Weakens – Signs point towards RBA remaining on hold for longer
  • Weak UK Services PMI Fails to Dent Pound – Brexit optimism encourages GBP demand
  • Eurozone Investor Confidence Hits Two-Year Low – Worries continue to weigh on economic outlook and Euro
  • NZD Exchange Rates Struggle as ANZ Commodity Price Index Contracts – New Zealand Dollar remains under pressure

Easing Inflation Expectations Drag Down Australian Dollar

The Australian Dollar saw little cause for confidence yesterday as the TD Securities inflation gauge weakened on the month. As the headline reading eased from 2.1% to 1.9% this suggests that the Reserve Bank of Australia (RBA) is unlikely to come under any pressure to raise interest rates in the near future. October’s services PMI failed to offer AUD exchange rates any support, meanwhile, as the sector lost momentum on the month.

If the RBA maintains a neutral policy outlook this afternoon the mood towards the Australian Dollar is likely to remain muted.

Pound Shakes Off Underwhelming Services PMI

Although the latest UK services PMI fell short of forecast the Pound continued to trend higher at the start of the week. Investors were quick to shrug off the disappointing dip in the PMI, which hit a seven-month low of 52.2. Speculation over a potential Brexit deal kept GBP exchange rates on a stronger footing throughout the day, in spite of mixed messages from officials. However, with the UK economy showing signs of coming under increasing pressure any Pound upside seems unlikely to last.

A rebound in October’s British Retail Consortium like-for-like sales figure could give GBP exchange rates a fresh boost this morning, though.

Euro Muted as Eurozone Investor Confidence Hits Two-Year Low

As the Sentix Eurozone investor confidence index slumped to a two-year low on the month this gave investors fresh incentive to sell out of the Euro. With a variety of factors such as global trade tensions and the Italian budget dispute contributing to this dip the chances of an imminent rebound appear slim at best. Even so, the weakness of EUR exchange rates was ultimately limited thanks to a softening US Dollar and a diminished sense of market risk appetite.

Another contraction in German factory orders on the year may drag the single currency lower once again.

Midterm Election Jitters Weigh on US Dollar

While October’s ISM non-manufacturing index proved stronger than forecast USD exchange rates still trended lower overnight. Even with the US service sector maintaining a fairly solid pace of growth worries over the impact of the US-China trade spat continued to limit the appeal of the US Dollar. Mounting political jitters also weighed on the US Dollar last night as markets braced for the midterm elections and a potential political shakeup.

Speculation over politics is likely to remain the primary driving force of USD exchange rates over the course of the day.

BOC Optimism Supports Canadian Dollar Uptick

Comments from Bank of Canada (BOC) Governor Stephen Poloz helped to support the Canadian Dollar last night as he continued to express a sense of optimism. Poloz defended the BOC’s economic forecasts, indicating that the policymaker remains confidence in the domestic outlook. Coupled with a steady uptick in oil prices this gave CAD exchange rates a boost, even in the face of persistent market risk aversion.

A solid building permits figure could encourage greater Canadian Dollar strength tonight.

Commodity Price Index Contraction Limits New Zealand Dollar Demand

NZD exchange rates struggled to find any particular traction yesterday in the wake of another sharp contraction in the ANZ commodity price index. The continued decline in commodity prices points towards weaker economic growth, something which could put pressure on the Reserve Bank of New Zealand (RBNZ) to cut interest rates. With confidence in the domestic outlook diminishing further the New Zealand Dollar remained largely static.

If the latest Global Dairy Trade auction shows another contraction in prices this could add to the sense of New Zealand Dollar bearishness.

Data Released

November 6th 11:01 GBP BRC Like-for-Like Sales (YoY) (OCT) 0.5%
November 6th 14:30 AUD Reserve Bank of Australia Rate Decision 1.50%
November 6th 18:00 EUR German Factory Orders (YoY) (SEP) -2.8%
November 7th 00:30 CAD Building Permits (MoM) (SEP) 0.3%

Post by TorFX

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