Australian Dollar
Stronger commodity prices continued supporting the Australian Dollar on Tuesday, with heightened market risk appetite fuelling demand for the antipodean currency. This helped overshadow a disappointing dip in the ANZ Roy Morgan Weekly Consumer Confidence Index, which slipped from 117.8 to 113.6. Even though investors have been pricing in higher odds of a December interest rate hike from the Federal Reserve this hasn’t had an overly negative impact on the ‘Aussie’, with the course of monetary tightening still seen as being a more gradual process.
A significant boost for the Australian Dollar could come this morning with the release of the third quarter Consumer Price Index. If inflationary pressure is shown to have risen as expected on the year then AUD exchange rates could extend recent gains.
Sterling
In the absence of fresh domestic data the Pound languished, remaining primarily at the mercy of Brexit-based uncertainty. Comments from Chancellor of the Exchequer Philip Hammond didn’t do anything to shore up Sterling, with Hammond noting that he would likely approve further quantitative easing if it was requested by the Bank of England (BoE). While the Chancellor pledged to put the financial sector at the heart of Brexit negotiations, this failed to ease concerns over the likely negative impact of access to the single market being lost.
This evening’s UK mortgage data may offer a rallying point for the Pound, assuming that the housing market continued to recover momentum in September.
Euro
Demand for the Euro picked back up despite worries surrounding the future of the EU-Canada free-trade agreement. Investors were encouraged to find that the German IFO Business Sentiment Survey had unexpectedly strengthened on the month. This indicated that confidence had improved within the Eurozone’s powerhouse economy, a sign that is seen to bode well for the outlook of the currency union as a whole. Even so, with the European Central Bank (ECB) expected to extend its quantitative easing program in December and the cohesion of the EU in question once again, the AUD EUR exchange rate trended higher.
The appeal of the Euro is expected to pick up in response to September’s German Import Price Index, which is forecast to have improved modestly from -2.6% to -2.0% on the year.
US Dollar
While Chicago Fed President Charles Evans took a more hawkish tone in his suggestion that interest rates are likely to be raised three times before the end of 2017 this did not boost the US Dollar for long. Other members of the Federal Open Market Committee (FOMC) took a rather more dovish view of the policy outlook, suggesting that the pace of monetary tightening could remain rather slower. As a result, with risk appetite already on the up, the ‘Greenback’ struggled to hold onto its earlier gains.
Further downside pressure for the US Dollar may be seen if the latest wholesale inventories data points towards a reduction in consumer demand.
Canadian Dollar
Brent crude continued to trend comfortably above the US$51 per barrel mark on Tuesday, with markets still hopeful that action to relieve the global oversupply glut is coming. However, as the Bank of Canada (BOC) has signalled that it is willing to engage in fresh monetary loosening if domestic data proves weak, the appeal of the ‘Loonie’ has been somewhat muted. While the Canadian Dollar has benefited from stronger risk appetite it has remained on a weaker footing against other commodity-correlated currencies.
Overnight, the Canadian Dollar could weaken further if the latest US crude oil inventories report points towards a fresh increase in stockpiles.
New Zealand Dollar
Risk appetite has also boosted the New Zealand Dollar, despite fresh domestic data being decidedly lacking at the start of the week. The prospect of the Fed only raising interest rates slowly encouraged investors to pile back into the higher-yielding ‘Kiwi’, stoking hopes that the Reserve Bank of New Zealand (RBNZ) will be encouraged to refrain from further rate cuts.
General market sentiment will continue to drive the ‘Kiwi’ today, with the next New Zealand data not set for release until Thursday.
Data Released
October 26th 11.30 AUD Consumer Price Index (YoY) (3Q) 1.1%
October 26th 17.00 EUR German Import Price Index (YoY) (SEP) -2.0%
October 26th 19.30 GBP BBA Loans for House Purchase (SEP) 1.4%
October 26th 23.30 USD Wholesale Inventories (SEP P) 0.1%