Australian Dollar
The Australian Dollar received a boost yesterday from suggestions that the Reserve Bank of Australia’s (RBA) inflation target is flexible. In his first speech as Governor of the RBA, Philip Lowe noted that monetary policy would be dictated by the ‘public interest’, rather than simply adhering to a rigid target. This has suggested to markets that the RBA will not automatically cut rates further should inflation weaken, although the latest RBA meeting minutes stated that price growth of 0.3% or lower would necessitate a rate cut. Considering forecasts are for growth of 0.4-0.5%, markets have largely ignored the warning.
The Westpac Leading Index for September will provide some indication of economic activity going forwards, although with Chinese industrial production, retail sales and 3Q GDP due out today it is likely that Australian data will be overlooked.
Sterling
Australian Dollar to Pound Sterling exchange rates dipped below opening levels yesterday as a relief rally for GBP finally began. Strong inflation data showed that CPI growth clocked in at 0.9% on the year, while core prices grew 1.5% – in both cases ten basis points above forecast. However, the ONS said that there was no evidence the increases were due to the weakened Pound. Meanwhile, the lawyer representing the government in a legal challenge against Brexit admitted that parliament would ‘very likely’ be required to ratify any deal made with the EU during negotiations. This lessened market fears of a ‘Hard Brexit’.
UK jobless data, earnings growth and unemployment rate figures are due out today and could motivate some AUD/GBP movement, assuming that today’s response to the CPI was a return to the norm for the Pound.
Euro
Multiple pain points soured Euro appetite yesterday, causing the common currency to slump versus the majority of its peers. Top of the list of concerns for investors were the findings of the latest European Central Bank (ECB) Bank Lending Survey, which showed the stress being placed upon Eurozone financial institutions by loose monetary policy. Almost every bank in the currency bloc reported squeezed profits thanks to the negative ECB deposit rate, while many reported that they would tighten corporate credit lending – the first time this has happened in two-and-a-half-years. Elsewhere, Spain has admitted it will overshoot its budget deficit targets next year, upping its deficit forecast by half a percent.
Eurozone construction output figures for August are the only domestic ecostats on the calendar tomorrow.
US Dollar
The US Dollar was largely weak yesterday after a series of disappointing data releases and a warning over low interest rates from a Federal Reserve official. Stanley Fischer cautioned that low interest rates risked damaging the economy, but claimed that forces outside of the Fed’s control meant that it was necessary policy remained loose. Later, US inflation data somewhat disappointed; while overall inflation rose from 1.1% to 1.5% as forecast, the less-volatile core inflation index edged unexpectedly lower to 2.2%. Considering the Fed’s last meeting minutes specifically highlighted improvements in inflation and the labour market as the economy’s key performance indicators, the bittersweet consumer price index figures have done nothing to firm rate hike bets.
October’s mortgage applications figures are due later today.
Canadian Dollar
Domestic and overseas news supported the Canadian Dollar yesterday. Manufacturing shipments figures for August rose by an above-forecast 0.9% – three times the rate of growth predicted. Meanwhile, oil production in Saudi Arabia was revealed to have ticked lower from its record high, while it was reported that floating oil storage had plummeted. Oil kept aboard storage ships only accounts for a small portion of the market, but the fact that the levels have fallen sharply shows that there is enough of an increasing demand or decreasing supply to warrant bringing these floating reserves onto the market. Oil prices were up after edging lower recently, bringing WTI and Brent to back around their best levels in a year.
Early Thursday morning will see the Bank of Canada (BOC) making its next interest rate decision. A freeze at 0.50% is expected.
New Zealand Dollar
A better-than-expected print from New Zealand’s consumer price data and a lower-than-expected price increase in the latest global dairy auction kept the New Zealand Dollar firmly mixed yesterday. Consumer prices halved to 0.2% on the quarter and the year, beating forecasts of 0% and 0.1% growth respectively. Meanwhile, the latest Global Dairy Trade auction saw dairy prices rise 1.4%, while whole milk powder increased 2.9%, significantly below the 7% increase anticipated by the futures market earlier in the week. Considering the last auction saw prices drop -3%, it will take another rise in a fortnight’s time to simply return prices to where they were in September, muting the positive impact of yesterday’s increase.
Data Released
October 19th 10.30 AUD Westpac Leading Index (MoM) (SEP)
October 19th 13.00 CNY GDP (YoY) (3Q) 6.7%
October 19th 19.30 GBP Average Weekly Earnings (3M/YoY) (AUG) 2.3%
October 19th 20.00 EUR Eurozone Construction Output w.d.a. (YoY) (AUG)
October 19th 22.00 USD MBA Mortgage Applications (OCT 14)
October 20th 01.00 CAD Bank of Canada Rate Decision (OCT 19) 0.50%
October 20th 01.00 CAD Bank of Canada Releases Monetary Policy Report