Australian Dollar
A sharp uptick in consumer inflation expectations kept the ‘Aussie’ on a stronger footing yesterday, encouraging a greater sense of optimism in the underlying strength of the domestic economy. With consumers anticipating that inflation will rise to 4.4% over the next twelve months this boosted hopes that the Reserve Bank of Australia (RBA) could return to a hawkish outlook in the near future. Stronger-than-expected Chinese trade data also shored up the Australian Dollar, with general market risk appetite picking up further.
Even with no domestic data scheduled for release ahead of the weekend, AUD exchange rates could extend their gains on the back of weaker US inflation and retail sales figures.
Sterling
Comments from Bank of England (BoE) policymaker Ian McCafferty prompted investors to pile back into the Pound overnight. As the notoriously hawkish McCafferty indicated that he is willing to discuss the normalisation of the central bank’s balance sheet – in addition to maintaining his support for an imminent rate hike – confidence in Sterling improved. However, as the BoE credit conditions report indicated that defaults on credit cards and unsecured loans have increased significantly the mood towards the Pound soon soured once again.
With worries over the uncertainty of Brexit still hanging over the domestic outlook the appeal of Sterling is likely to remain generally muted.
Euro
Confirmation that the German consumer price index had clocked in at 0.2% on the month in June did little to bolster the appeal of the Euro. As inflationary pressure across the currency union continues to fall short of the European Central Bank’s (ECB) target range the chances of any increased push towards tighter monetary policy remains limited. With risk appetite on the up the single currency struggled to find any particular support in spite of a weaker US Dollar.
If the Eurozone trade surplus is found to have widened in May this could give the Euro a boost by fostering greater confidence in the strength of the domestic economy.
US Dollar
The ‘Greenback’ remained under pressure as a result of Fed Chair Janet Yellen’s less hawkish speech, with investors unwinding bets that the central bank will pursue a more aggressive pace of tightening. A disappointing initial jobless claims figure added to the bearishness of USD exchange rates, although optimism in the strength of the labour market persisted. Now that the Fed is less likely to hike interest rates as many times as markets had speculated the US Dollar could remain under increased downside pressure.
Forecasts point towards a slight moderation in the June consumer price index report, with any dip in inflationary pressure set to exacerbate the softness of the ‘Greenback’.
Canadian Dollar
In spite of the Bank of Canada’s (BOC) decision to raise interest rates for the first time in seven years the Canadian Dollar was unable to hold onto its gains for long. The ‘Loonie’ came under renewed pressure thanks to fresh weakness in oil prices, with investors failing to take encouragement from a larger-than-expected fall in US stockpiles. A slight dip in the new housing price index failed to offer a fresh rallying point to the Canadian Dollar either as markets engaged in a round of profit taking.
However, if risk appetite prompts an uptick for oil markets CAD exchange rates could find some renewed support ahead of the weekend.
New Zealand Dollar
Although the ANZ consumer confidence index showed a sharp contraction on the month, the New Zealand Dollar remained on a stronger footing across the board. While domestic data proved disappointing the general sense of market risk appetite saw the ‘Kiwi’ trending higher, benefitting as investors sought out higher-yielding assets.
A weak showing from this morning’s manufacturing PMI, however, could see the New Zealand Dollar ceding its gains shortly.
Data Released
July 14th 08:30 NZD Manufacturing PMI (JUN)
July 14th 16:00 EUR Eurozone Trade Balance (MAY)
July 14th 22:30 USD Consumer Price Index (YoY) (JUN) 1.7%
July 14th 22:30 USD Advance Retail Sales (MoM) (JUN) 0.1%
July 15th 00:00 USD University of Michigan Confidence Index (JUL P) 95.0