Australian Dollar
Unexpectedly strong Chinese trade data helped to buoy the Australian Dollar ahead of the weekend, with imports found to have risen by a bullish 18.7% on the year. Base metal prices rallied sharply in response to this positive showing, with confidence in the outlook of the global economy also improving. The tone of the Reserve Bank of Australia’s (RBA) latest Financial Stability Review added to the more optimistic mood of the ‘Aussie’, with policymakers expressing satisfaction with the impact of recent regulatory measures.
Ahead of tomorrow’s RBA meeting minutes the mood towards the Australian Dollar could sour, however.
Sterling
It was a volatile day of trading for the Pound on Friday, with markets reacting to the conflicting messages delivered by various UK and EU officials on the subject of Brexit. Hopes for the second phase of negotiations to commence before Christmas strengthened and then diminished, prompting something of a rollercoaster ride for GBP exchange rates. Growing doubts over the prospect of an imminent Bank of England (BoE) interest rate hike also weighed on Sterling.
If the Nationwide house price index points towards a weakening housing market this could see the Pound slip further today.
Euro
Comments from European Central Bank (ECB) President Mario Draghi weighed heavily on EUR sentiment. Markets were not impressed by Draghi’s reaffirmation of the fact that interest rates will not rise until ‘well past’ the end of the ECB’s quantitative easing program. This left the single currency somewhat lacking in support, with the central bank looking set to maintain a relatively dovish bias for some time to come. An unchanged finalised German consumer price index was not enough to shore up the Euro.
Even so, if the German wholesale price index suggests a further increase in inflationary pressure within the Eurozone’s powerhouse economy this could offer the single currency a fresh rallying point.
US Dollar
There was a general sense of disappointment as September’s US consumer price index fell short of forecast, clocking in at 2.2% rather than 2.3% on the year. This dampened the mood towards the US Dollar, even though the University of Michigan confidence index surprised sharply to the upside in October. Even so, as CPI is not the Federal Reserve’s preferred measure of inflation this is unlikely to significantly diminish the prospect of an imminent interest rate hike, limiting the downside potential of the ‘Greenback’.
If tonight’s Empire manufacturing index weakens on the month this could still dent demand for the US Dollar.
Canadian Dollar
Even though oil was on track to end the week on its largest gain since mid-September this was not enough to return the ‘Loonie’ to a stronger footing. While strong Chinese demand for oil suggests that the global oversupply glut is starting to ease the commodity-correlated currency struggled to benefit. Speculation over the future of the North American Free Trade Agreement (NAFTA) instead diminished confidence in the Canadian Dollar.
Further signs of weakness from the Canadian housing market are equally likely to limit the upside potential of CAD exchange rates overnight.
New Zealand Dollar
Demand for the ‘Kiwi’ strengthened on the back of the positive Chinese data and a general uptick in market risk appetite. Although the New Zealand manufacturing PMI showed a slight dip on the month this failed to dent NZD exchange rates, with the index still firmly in expansion territory. With investors hopeful that a coalition government could soon take shape there was little reason not to buy into the New Zealand Dollar on Friday.
A strong showing from September’s services PMI may offer the ‘Kiwi’ further support this morning.
Data Released
October 16th 07:30 NZD Services PMI (SEP)
October 16th 09:01 GBP Rightmove House Prices (YoY) (OCT)
October 16th 16:00 EUR German Wholesale Price Index (YoY) (SEP)
October 16th 22:30 USD Empire Manufacturing (OCT) 20
October 16th 23:00 CAD Existing Home Sales (MoM) (SEP)