Wider-Than-Forecast Trade Deficit Drags on New Zealand Dollar

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  • AUD Exchange Rates Soften as Geopolitical Tensions Mount – Australian Dollar on back foot ahead of private capital expenditure data
  • Pound Extends Bullish Run as Odds of No-Deal Brexit Decline – Weaker consumer confidence may halt GBP uptrend today
  • Weakening Loans Growth Weighs Heavily on Euro – Investors wary of potential for increased ECB dovishness
  • Wide Trade Deficit Knocks New Zealand Dollar – Confidence in economic outlook diminishes as trade conditions sour

Global Geopolitical Tensions Weigh on Australian Dollar

Increasing geopolitical tensions weighed on the risk-sensitive Australian Dollar yesterday as relations between India and Pakistan soured. With tensions between the two neighbouring states flaring up the mood of markets turned dovish, leaving AUD exchange rates on the back foot. Another surprise contraction in the fourth quarter Australian construction work data put additional pressure on the Australian Dollar.

However, as the fourth quarter private capital expenditure figure is forecast to show a solid rebound this could give AUD exchange rates a leg up today.

Lower Odds of No-Deal Brexit Extend Pound Gains

As analysts slashed the odds of a no-deal Brexit this encouraged the Pound to extend its bullish run further overnight. While the ultimate outcome of Brexit negotiations remains unclear this was not enough to prevent GBP exchange rates pushing to fresh multi-month highs. A solid uptick in February’s BRC shop price index added to the positive mood of the Pound, with signs pointing towards increased inflationary pressure.

A continued decline in the GfK consumer confidence index could see GBP exchange rates losing some of their steam.

Euro Stumbles on Slowing Corporate Loans Growth

Confidence in the outlook of the Eurozone economy continued to sour last night as January’s M3 money supply measure unexpectedly slowed from 4.1% to 3.8%. This decline indicates a slowdown in corporate loan growth, highlighting the increasing sense of caution among businesses and lenders and leaving the Euro on a downtrend. The weak showing could encourage the European Central Bank (ECB) to return to a monetary loosening bias, further diminishing the prospect of a 2019 interest rate hike.

Tonight’s German consumer confidence index may give EUR exchange rates a boost, however, if inflation picks up once again on the year.

Widening Goods Trade Deficit Limits US Dollar Appeal

As the US advance goods trade deficit widened further than forecast in December this limited the appeal of the US Dollar. Investors were not impressed by this latest sign of a deterioration in trade conditions, especially as a breakthrough in US-China trade discussions has yet to materialise. However, the losses of USD exchange rates were limited thanks to the general decline in market risk appetite, benefitting from its position as a safe-haven currency.

Confirmation that the US economy lost momentum in the fourth quarter could see the US Dollar shedding further ground tonight.

Canadian Dollar Shakes off Weakening Inflation

Although January’s consumer price index eased from 2.0% to 1.4% on the year this failed to drag the Canadian Dollar down. Investors instead took encouragement from the modest improvement in the monthly inflationary measure, which suggests that price pressures are still building within the Canadian economy. Coupled with a strong performance from the oil market this kept CAD exchange rates on a solid footing during Wednesday’s European session.

Even so, if market risk appetite continues to weaken this could see the Canadian Dollar return to a downtrend.

Trade Deficit Drags Down New Zealand Dollar

The New Zealand Dollar fell further out of favour in the wake of January’s underwhelming trade data. As the trade balance slipped into a significant state of deficit this dragged NZD exchange rates lower across the board. With export volumes dropping sharply confidence in the outlook of the New Zealand economy naturally declined, especially in the face of deteriorating global market sentiment.

Unless February’s ANZ activity outlook index shows a solid improvement this morning the appeal of the New Zealand Dollar is likely to remain muted.

Data Releases

February 28th 11:00    NZD    ANZ Activity Outlook (FEB)    
February 28th 11:01    GBP    GfK Consumer Confidence (FEB)    -15
February 28th 11:30    AUD    Private Capital Expenditure (4Q)    1%
March 1st 00:00    EUR    German Consumer Price Index (YoY) (JAN)    1.5%
March 1st 00:30    USD    Annualised Gross Domestic Product (QoQ) (4Q)    2.5%

Post by TorFX

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