Australian Dollar
There was an upside surprise from the third quarter Australian Consumer Price Index, which strengthened on the year from 1.0% to 1.3%. This suggested that inflationary pressure within the domestic economy is continuing to strengthen, reducing pressure on the Reserve Bank of Australia (RBA) to consider further monetary loosening. As a result the Australian Dollar was encouraged to trend higher across the board, also benefitting from stronger commodity prices as markets returned to a state of greater risk appetite.
Further support for the antipodean currency could be prompted by the third quarter Import and Export Price Indexes, which are both forecast to show an improvement on the quarter.
Sterling
Demand for the Pound remained generally limited on Wednesday, with Brexit-based uncertainty continuing to drag on Sterling. Comments from Bank of England (BoE) Governor Mark Carney encouraged speculation that the possibility of another interest rate cut remains on the table. Investors were not impressed by a report from the Resolution Foundation, which indicated that Chancellor Hammond could face a £84 billion black hole in public finances over the next five years. This puts pressure on the Autumn Statement, giving markets little particular reason to favour Sterling.
Volatility is expected for the AUD/GBP exchange rate this evening as the third quarter UK GDP data is forecast to point towards a loss of growth momentum.
Euro
Confidence in the Euro was boosted by better-than-expected German Import Price Index figures. As prices strengthened from -0.2% to 0.1% on the month in September this appeared to bode well for upcoming inflation data. Rising price pressures will give the European Central Bank (ECB) less reason to take a dovish outlook in December, although markets are still pricing in the likelihood of an extension to the quantitative easing program. Weakness in the US Dollar also benefitted the single currency, thanks to the negative correlation of the EUR/USD exchange rate.
No change is forecast for September’s Eurozone M3 money supply measure, although any uptick could fuel confidence in the inflationary outlook and boost the Euro.
US Dollar
Despite the US Services PMI unexpectedly strengthening on the month, the US Dollar remained on a weaker footing overnight. The heightened appeal of higher-yielding currencies weighed on the ‘Greenback’, particularly as investors viewed the outlook of the Federal Reserve as more dovish. Less encouragingly, wholesale inventories were found to have risen further than forecast, suggesting that consumer demand within the world’s largest economy has slowed. With high odds of a December rate hike from the Fed already priced into the US Dollar, scope for sustained gains remains limited.
Even so, the US Dollar could find some support if tonight’s durable goods orders data proves more positive.
Canadian Dollar
Oil prices plummeted in response to the surge in US stockpiles indicated by the latest American Petroleum Institute (API) report. Brent crude slipped below the US$50 per barrel mark for the first time in three weeks, a disappointment to investors as the prospect of an agreement between producers remains distant. With nothing in the way of domestic data to distract investors this naturally dragged the Canadian Dollar down.
Developments in the oil market are expected to remain the primary driver of the Canadian Dollar today.
New Zealand Dollar
With markets struggling to maintain a bullish outlook, the New Zealand Dollar came under renewed pressure. As the odds continue to mount for the Reserve Bank of New Zealand (RBNZ) to cut interest rates at its November policy meeting the appeal of the ‘Kiwi’ is likely to remain generally muted.
New Zealand Dollar exchange rates could pick up this morning though if the latest raft of domestic trade data proves encouraging. Should the trade deficit have narrowed in September NZD exchange rates could rally strongly.
Data Released
October 27th 08.45 NZD Trade Balance (SEP) -1.1 billion
October 27th 11.30 AUD Import Price Index (QoQ) (3Q) -0.8%
October 27th 19.30 GBP Gross Domestic Product (YoY) (3Q) 2.1%
October 26th 23.30 USD Durable Goods Orders (SEP P) 0.1%