Australian Dollar
Investors were prompted to sell out of the ‘Aussie’ on Thursday, despite September’s unemployment rate coming in lower than forecast at 5.6%. This was due to the fact that employment had actually weakened on the whole, with the number of economically active individuals declining. As a result there was little cause for confidence in the Australian economy, leaving the antipodean currency to slump across the board. Even so, with the labour market report considered notoriously volatile the length of this decline may prove limited.
With no further domestic data set for release ahead of the weekend the Australian Dollar will be primarily driven by market risk appetite today.
Sterling
Although the AUD/GBP exchange rate was bullish, demand for the Pound generally weakened yesterday, with the issue of Brexit and the UK’s future outside the EU continuing to weigh heavily on the minds of investors. There was disappointment from September’s retail sales data, which fell short of forecast to show growth of 4.1% on the year, as opposed to August’s bullish 6.6% uptick. With consumer spending expected to diminish over coming months, as higher inflationary pressure feeds through into the wider economy, this slowing saw Sterling soften further. Nevertheless, the AUD/GBP exchange rate was unable to capitalise on this weakness.
The public sector net borrowing figure for September looks set to provoke fresh Pound volatility this evening, with higher borrowing likely to exacerbate worries over the wideness of the UK deficit.
Euro
It was a volatile day for the Euro, which saw some sharp moves in response to the latest commentary from European Central Bank (ECB) President Mario Draghi. While Draghi initially boosted the single currency by saying that policymakers has not discussed an extension of the quantitative easing program this was not long-lived. Ultimately markets interpreted his comments as pointing towards the possibility of further loosening in December, pushing the Euro lower against many of the majors.
Overnight the Eurozone Consumer Confidence Index for October is expected to show a modest uptick from -8.2 to -8, something which could improve the appeal of the single currency.
US Dollar
The chances of a December interest rate hike from the Federal Reserve were boosted by a speech from New York Fed President William Dudley, who indicated that a 2016 rate hike would ‘be no big deal’. Coupled with the increasing confidence that Donald Trump will not win the US presidential election, this saw the US Dollar making strong gains against rivals. Although jobless claims were later found to have risen further than forecast this failed to dent the buoyant US Dollar, adding to the general market mood of risk aversion.
Friday won’t see the release of any additional US data, which could leave the US Dollar vulnerable to profit taking even if investor confidence remains heightened.
Canadian Dollar
A larger decline in US crude stockpiles kept oil prices on an uptrend overnight, particularly as hopes remained high that oil producers would agree to limit output in order to support the market in the near future. This helped to keep the ‘Loonie’ on a slightly stronger footing against its commodity-correlated rivals, although that relative strength is likely to prove short-lived as oil prices remain distinctly volatile.
Expectations are high for the latest Canadian Consumer Price Index report, which is forecast to show that inflation rose from 1.1% to 1.4% on the year. As this would push the inflation rate closer to the Bank of Canada’s (BOC) 2% target, the Canadian Dollar is expected to trend higher in response.
New Zealand Dollar
Risk aversion weighed on the New Zealand Dollar on Thursday, although the AUD/NZD exchange rate nevertheless slumped sharply. The relative strength of the US Dollar diminished the appeal of the higher-yielding asset, particularly as the Reserve Bank of New Zealand (RBNZ) is widely expected to cut interest rates imminently.
Credit card spending results could offer the ‘Kiwi’ a rallying point this afternoon, with any indications of higher consumer confidence boding well for the wider economy. If risk appetite improves then the New Zealand Dollar may well return to a more bullish trend today.
Data Released
October 21st 13.00 NZD Credit Card Spending (YoY) (SEP)
October 21st 19.30 GBP Public Sector Net Borrowing (SEP) 8.5b
October 21st 23.30 CAD Consumer Price Index (YoY) (SEP) 1.4%
October 22nd 01.00 EUR Eurozone Consumer Confidence (OCT A) -8