Australian Dollar
While the Westpac leading index showed another month of negative growth in August this failed to particularly weigh on the Australian Dollar. Markets maintained a positive view of the ‘Aussie’ on the back of the more hawkish nature of the Reserve Bank of Australia’s (RBA) meeting minutes, with investors speculating that interest rates could rise sooner than expected. This kept the antipodean currency on a stronger footing even as jitters over the policy outlook of the Federal Reserve mounted once again.
Volatility could be in store for AUD exchange rates this afternoon in response to comments from RBA Governor Lowe, with any hawkish signals likely to boost the ‘Aussie’ higher against its rivals.
Sterling
Contrary to market expectations UK retail sales continued to strengthen in August, rising 1% on the month. However, while the Pound initially jumped in response to this strong showing the positive impact of the data proved somewhat short-lived. Even though this signals that consumers are not tightening their belts in response to rising inflationary pressures this spending is largely being driven by credit. As concerns have already been expressed over the increasing reliance on consumer credit this naturally muted the appeal of Sterling.
The mood towards the Pound could deteriorate further today if UK public sector net borrowing is found to have risen sharply on the month as forecasts suggest.
Euro
A modest uptick in German producer prices was not enough to shore up the Euro yesterday, even though this points towards a continued increase in inflationary pressure. Given the persistent reticence of the European Central Bank (ECB) on the subject of inflation this failed to particularly encourage investors. As the prospect of an imminent ECB policy tightening still seems questionable the single currency struggled to find any support, particularly as demand for higher-yielding assets picked up.
The Euro could find a rallying point, however, if the ECB Economic Bulletin or the latest commentary from President Mario Draghi paint a more optimistic picture of the domestic policy outlook.
US Dollar
Confidence in the outlook of the US economy remained relatively muted as the latest existing home sales data proved disappointing. As sales unexpectedly contracted -1.7% on the month this offered fresh evidence that the domestic housing market is slowing, boding ill for the wider economic outlook. Speculation over the policy outlook of the Federal Reserve also provoked volatility for the US Dollar, with markets revising bets over the likelihood of the central bank continuing its tightening cycle at a faster pace in the coming months.
Any softness in tonight’s leading indicators figure could give investors fresh reason to sell out of the ‘Greenback’.
Canadian Dollar
Rumbles from the Bank of Canada (BOC) continued to weigh on the ‘Loonie’ overnight, with markets seeing only limited upside potential for CAD exchange rates at this juncture. This limited the positive impact of the continued bullishness of oil prices, with Brent crude still trending comfortably above the $US55 per barrel mark as optimism within the market grows. However, as US crude inventories showed a greater increase than forecast this offered the Canadian Dollar little in the way of support.
In the absence of any fresh domestic data today the appeal of the ‘Loonie’ may remain rather limited.
New Zealand Dollar
As the New Zealand current account deficit proved smaller than forecast this helped to boost NZD exchange rates further on Wednesday. This saw the current account deficit-GDP ratio for the second quarter unexpectedly improve, encouraging investors to continue piling into the New Zealand Dollar. With the wider sense of market risk appetite also strengthening once again the ‘Kiwi’ was able to hold onto its bullish run.
If this morning’s second quarter gross domestic product data also shows an improvement then NZD exchange rates could be in line to extend their recent gains even further.
Data Released
September 21st 08:45 NZD Gross Domestic Product (YoY) (2Q) 2.5%
September 21st 15:10 AUD RBA Governor Lowe gives speech in Perth
September 21st 18:00 EUR ECB Publishes Economic Bulletin
September 21st 18:30 GBP Public Sector Net Borrowing (AUG) 6.4 billion
September 21st 23:30 EUR ECB President Mario Draghi speaks in Frankfurt
September 22nd 00:00 USD Leading Indicators (AUG) 0.2%