Widening Trade Deficit Fuels New Zealand Dollar Slump

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Headlines

  • Westpac Leading Index Suggested Weaker Economic Growth – AUD exchange rates lack support
  • German Producer Price Index Disappointed – Signs point towards softer levels of domestic inflation
  • US Dollar Unable to Capitalise on Home Sales Resurgence – Investors remain ambivalent over tax reforms
  • NZD Exchange Rates Dented by Widening Trade Deficit – Rising imports undermine economic confidence

Australian Dollar

A slight easing in the Westpac leading index for November saw the ‘Aussie’ falter. As the indicator slipped from 0.14% to 0.10% this suggests that Australia’s economic momentum is not as strong as might be hoped. This could discourage the Reserve Bank of Australia (RBA), further boosting the likelihood of interest rates remaining on hold for the foreseeable future. Even so, the underlying trend of the Australian Dollar still looks resilient at this juncture.

As things go quiet on the data front ahead of the Christmas weekend AUD exchange rates may struggle to find any fresh traction.

Sterling

Demand for the Pound remained muted on Wednesday, still weighed down by persistent market worries over Brexit. Investors were not encouraged by a weakening of the CBI reported retail sales index, which dipped from 26 to 20 in December. This suggests that consumers are continuing to rein in their spending in response to mounting inflation and the ongoing wage squeeze, something which could drag on wider economic growth.

Even with forecasts pointing towards a steady reading of -12 from the latest GfK consumer confidence index Sterling is likely to remain under pressure in the short term.

Euro

There was some disappointment as the German producer price index for November fell short of forecasts. As producer prices only rose 0.1% on the month this indicates that inflationary pressure within the Eurozone’s powerhouse economy is still rather lacklustre. Even so, this failed to keep EUR exchange rates on a weaker footing for long as the single currency capitalised on a weaker US Dollar.

Any improvement in the Eurozone consumer confidence index for December is likely to maintain the bullishness of the Euro, with the currency union looking set to end the year on a strong note.

US Dollar

While US existing home sales smashed estimates to jump 5.6% on the month in November this was not enough to shore up USD exchange rates overnight. Investors continued to ponder the implications of the Trump administration’s tax reform bill, with markets still rather wary of its likely long-term impact on economic growth. These jitters encouraged further selling of the ‘Greenback’, even in the absence of any wider sense of market risk appetite.

With November’s leading index expected to show a significant slowdown on the month the appeal of the US Dollar could remain limited today.

Canadian Dollar

A solid rebound of 1.5% in wholesale sales offered a boost to the Canadian Dollar, pointing towards a recovery in demand. While confidence in the domestic economic outlook is still somewhat lacking this positive showing offered an encouraging sign to investors. Nevertheless, anticipation ahead of higher-impact Canadian growth and inflation data kept CAD exchange rates from making marked gains.

If November’s consumer price index data strengthens as forecast, though, the Canadian Dollar could trend higher against its rivals.

New Zealand Dollar

Although exports picked up in November this was counterbalanced by a sharp increase in imports, prompting the New Zealand trade deficit to unexpectedly widen. This encouraged the New Zealand Dollar to trend lower across the board, with market confidence naturally faltering. While credit card spending showed a solid increase on the year this was not enough to shore up NZD exchange rates.

The appeal of the ‘Kiwi’ could diminish further in response to the third quarter gross domestic product data, unless growth betters expectations.

Data Released

December 21st 07:45 NZD Gross Domestic Product (YoY) (3Q) 2.4%
December 21st 10:01 GBP GfK Consumer Confidence (DEC) -12
December 21st 19:30 GBP Public Sector Net Borrowing (NOV) 8.5 billion
December 21st 23:30 CAD Consumer Price Index (YoY) (NOV) 2.0%
December 22nd 01:00 EUR Eurozone Consumer Confidence (DEC) 0.2
December 22nd 01:00 USD Leading Index (NOV) 0.4%

Post by TorFX

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