Australian Dollar
The Australian Dollar was on mixed form yesterday, starting the session on the decline but largely recovering into positive territory towards the end of trading. US Federal Reserve rate hike bets eased from their recent highs of 70%, allowing the ‘Aussie’ some room to appreciate despite a lack of concrete data or domestic news to support an advance. Commodities had risen sharply early in the day, but fell back to opening levels later.
The Reserve Bank of Australia’s (RBA) new Governor, Philip Lowe, will deliver a speech in Sydney today. Investors will be interested to note how his tone differs from that of his predecessor, Glenn Stevens.
Sterling
Brexit tensions in government enabled the Australian Dollar to Pound Sterling exchange rate to edge above opening levels yesterday. Markets were reacting to rumours of increasing difficulties between pro-Brexit members of the cabinet and Chancellor Philip Hammond. According to various news reports, the Chancellor is increasingly provoking the ire of his colleagues by arguing against the strong curbs in immigration the government seems intent upon pursuing. The Treasury was even forced to deny rumours that the Chancellor is so frustrated with the way the Brexit is being approached that he intends to quit his job.
September’s UK inflation data is out today, although the forecast acceleration in consumer price growth will likely have little impact upon Sterling given that the Bank of England (BoE) has already stated the weak Pound will cause temporary price surges and that policy decisions will overlook an overshoot in the 2% target.
Euro
Expectations of no further policy easing from the European Central Bank (ECB) this week helped keep the Euro trending bullishly yesterday. Investors bought into the common currency thanks to forecasts for no changes to current interest rates, while rumours of a taper to the quantitative easing programme even gave markets a reason to hope for signs of policy tightening. Eurozone inflation data also proved supportive, with finalised consumer price growth clocking in at 0.4% on the month and the year, while core prices firmed on the month to 0.5% and held steady at 0.8% on the year.
The ECB will release its latest bank lending survey today.
US Dollar
The US Dollar trended uncertainly yesterday, weakening overall as the end of the session drew near thanks to comments from the weekend from Federal Reserve Chair Janet Yellen. Speaking at the Boston Fed Conference, the Fed Chair suggested it could be beneficial to let the US economy run hot, rather than looking to curb growth with monetary policy. Traders were unsure how to price this new information. On the one hand, allowing inflation to overshoot its target and unemployment to fall further would suggest the Fed would need to leave interest rates low. On the other, it is not impossible for the Fed to raise interest rates once and still run ultra-loose policy; in the grand scheme of things an extra 0.25% isn’t going to make a huge amount of difference. The US Dollar weakened further after the Empire manufacturing index for October unexpectedly slumped from -1.99 to -6.8 instead of recovering to 1 as forecast.
Fed rate hike bets could receive a further boost if today’s US consumer price growth accelerates as forecast from 1.1% to 1.5%.
Canadian Dollar
The Canadian Dollar was largely advancing yesterday, although gains remained muted as investors were unwilling to overly adjust their positions ahead of the Bank of Canada (BOC) meeting this week. Gains were also weakened by the news that the Canada Mortgage and Housing Corp (CMHC) was set to increase its rating of housing market risk from ‘moderate’ to ‘strong’ when it released its next report. This will be the first time CMHC has issued a warning for the entire Canadian housing market as a whole.
The only Canadian data due today is the manufacturing shipments data for August, which is predicted to show that shipments edged higher.
New Zealand Dollar
New Zealand’s service industry data may have pointed to a slowdown, but the New Zealand Dollar was trending bullishly yesterday. The performance of services index weakened from 57.9 to 54.1. However, the ‘Kiwi’ continued to trend positively thanks to indications that the upcoming Global Dairy Trade auction will see a strong increase in dairy prices, even though today’s inflation data is expected to show a weakening in price growth.
New Zealand’s upcoming inflation data is expected to show a weakening of consumer price growth, yet judging by yesterday’s ‘Kiwi’ performance, markets are already resigned to further interest rate cuts and so the fall will not overly perturb them.
Data Released
October 18th 08.10 AUD RBA Governor Lowe Speech in Sydney
October 18th 08.45 NZD Consumer Prices Index (YoY) (3Q) 0.1%
October 18th 19.00 EUR ECB Bank Lending Survey
October 18th 19.30 GBP Consumer Price Index (YoY) (SEP) 0.9%
October 18th 22.30 CAD Manufacturing Shipments (MoM) (AUG) 0.2%
October 18th 23.30 USD Consumer Price Index (YoY) (SEP) 1.5%