Australian Dollar
Demand for the ‘Aussie’ weakened sharply on Thursday in response to the latest commentary from Reserve Bank of Australia (RBA) President Philip Lowe. As Lowe’s words seemed to imply that the central bank is still some way from considering any tightening of monetary policy this left AUD exchange rates on the back foot. The relative hawkishness of the Federal Reserve policy announcement also weighed on the Australian Dollar, with markets seeing little incentive to favour the antipodean currency.
With no fresh data to motivate investors ahead of the weekend the ‘Aussie’ is likely to remain in sluggish spirits today.
Sterling
Confidence in the Pound improved somewhat in the wake of a better-than-expected UK public sector net borrowing figure. As new government debt only rose by 5.1 billion in August, as opposed to the 6.4 billion investors had expected, this helped to shore up GBP exchange rates. This stronger showing suggests that the domestic economy is in a healthier shape than previously thought, encouraging bets that the Bank of England (BoE) could raise interest rates sooner rather than later.
The latest speech on Brexit from Prime Minister Theresa May looks set to provoke jitters for Sterling, with markets keen for any fresh indications over the UK government’s outlook on negotiations.
Euro
Although the European Central Bank (ECB) Economic Bulletin did not offer anything particularly new this failed to keep the single currency under pressure. While the ECB continues to express concern over the relative strength of EUR exchange rates markets do not see this as a significant threat to the odds of imminent monetary tightening. Investors also responded positively to the latest events in Catalonia, where the Spanish government is cracking down on attempts to hold an independence referendum.
Further comments from ECB President Mario Draghi may boost the Euro further this evening, provided he does not take a more dovish stance on monetary policy.
US Dollar
Markets reacted positively to the Fed’s September policy decision, with the central bank setting out its intention to begin trimming its balance sheet. This long-awaited start to the unwinding of the Fed’s quantitative easing program was welcomed by investors, especially as it was accompanied with strong indications that a December interest rate hike remains on the cards. As a result the US Dollar trended sharply higher across the board, particularly as August’s leading indicators figure also bettered forecast.
If September’s US manufacturing and services PMIs show an uptick on the month this could keep the ‘Greenback’ on a bullish run.
Canadian Dollar
An unexpected uptick in July’s wholesale sales figure was not enough to shore up the ‘Loonie’ overnight, with investors deterred by the apparently less hawkish outlook of the Bank of Canada (BOC). Building downside pressure on oil prices also dented CAD exchange rates, with jitters rising in anticipation of the latest OPEC-led meeting over oil production limits. While markets are hoping to see an extension of the deal at this juncture there are still concerns that compliance with the limit is faltering.
The Canadian Dollar could find a rallying point on the back of August’s consumer price index data, with inflation forecast to have accelerated to 1.5% on the year.
New Zealand Dollar
While the second quarter New Zealand gross domestic data matched market expectations the mood towards the ‘Kiwi’ nevertheless deteriorated. This was in large part due to the resurgent strength of the US Dollar and rising Fed interest rate hike bets, with the appeal of risk-sensitive currencies diminishing. Another negative development for the New Zealand Dollar was a contraction in credit card spending on the month, suggesting that consumers are less confident in the domestic outlook.
NZD exchange rates are likely to remain on a weaker footing today, unless market risk appetite picks up significantly.
Data Released
September 22nd 17:30 EUR German Manufacturing PMI (SEP P) 59
September 22nd 17:30 EUR German Services PMI (SEP P) 53.8
September 22nd 18:00 EUR ECB President Mario Draghi speaks in Dublin
September 22nd 22:30 CAD Consumer Price Index (YoY) (AUG) 1.5%
September 22nd 23:45 USD US Manufacturing PMI (SEP P) 53