Australian Dollar
House prices continued to rise rapidly in the fourth quarter of 2016, with the Australian house price index clocking in at 7.7%. This compounded the more cautious tone expressed in the Reserve Bank of Australia’s (RBA) meeting minutes, with policymakers concerned by the amount of heat still in the housing market. While this is unlikely to prompt the RBA to cut interest rates, the development nevertheless weighed on the ‘Aussie’. But as the central bank looks set to maintain its neutral bias the Australian Dollar could recover in the near term.
A strong showing from February’s Westpac leading index could boost confidence in the outlook of the Australian economy.
Sterling
UK inflation surprised to the upside in February, with the consumer price index rising 2.3% on the year. This saw inflation enter the Bank of England’s (BoE) target range, boosting market hopes that policymakers will take a more hawkish view on policy. Coupled with a lower level of public sector net borrowing and a strong CBI manufacturing optimism reading, this painted a more optimistic view of the domestic economy. As a result the Pound went on a bullish run despite signs that consumers will face a greater squeeze in the coming months.
Political developments could bring the Pound’s latest uptrend to an end, with tensions likely to mount over the prospect of a second Scottish independence referendum.
Euro
The first televised debate in the French presidential election encouraged the Euro to trend higher across the board on Tuesday. Far-right candidate Marine Le Pen was not seen to impress, with the appearance failing to boost her numbers in the polls. With markets increasingly hopeful that the string of populist upsets is at an end, the single currency made solid gains, even though the race is still far from over.
Demand for the single currency could weaken once again, however, if tonight’s Eurozone current account report shows a significant narrowing of the deficit.
US Dollar
Confidence in the US Dollar weakened sharply after Chicago Fed President Charles Evans took a more cautious stance on monetary policy. Evans’ comments added to the impression that the central bank will pursue a slower pace of tightening, leaving investors with little appetite for the US Dollar. Although the fourth quarter current account deficit was found to have unexpectedly narrowed this was not enough to boost USD exchange rates, particularly as markets awaited further commentary from Fed policymakers.
If the message from the Fed continues to point towards two or less interest rate hikes over the remainder of the year, USD could extend its losses.
Canadian Dollar
The ‘Loonie’ made some limited gains in the wake of better-than-expected Canadian retail sales figures. Sales were found to have rebounded strongly at the start of the year, rising 2.2% on the month in January. However, oil prices remained under pressure as worries over the global oversupply glut and rising US production persisted. Support could be coming for the Canadian Dollar though as OPEC is speculated to be considering extending its output cut beyond June.
In the absence of further domestic data, developments in the oil market will remain the primary driver of the Canadian Dollar.
New Zealand Dollar
Credit card spending was found to have contracted -1.4% on the month in February, suggesting that consumer confidence has weakened. This put renewed pressure on the New Zealand Dollar, undermining optimism regarding the health of the domestic economy. Even with the appeal of safe-haven assets diminished, the ‘Kiwi’ was unable to find particular traction against rivals and remained trending lower overnight.
Demand for the New Zealand Dollar is likely to remain limited ahead of the Reserve Bank of New Zealand (RBNZ) policy meeting.
Data Released
March 22nd 10:30 AUD Westpac Leading Index (MoM) (FEB)
March 22nd 20:00 EUR Eurozone Current Account (JAN)
March 22nd 07:00 NZD Reserve Bank of New Zealand Rate Decision 1.75%