Australian Dollar
The tone of the Reserve Bank of Australia’s (RBA) October meeting minutes was decidedly neutral, emphasising the fact that global monetary policy does not dictate domestic interest rates. This suggests that the RBA is still in no hurry to raise interest rates, limiting the upside potential of the Australian Dollar. However, this was not enough to keep AUD exchange rates on a softer footing overnight as confidence in the global economic outlook remains heightened.
Even so, another weak showing from the latest Westpac leading index figure is likely to weigh on the ‘Aussie’ today.
Sterling
Even though UK inflation accelerated to 3% on the year in September this was not enough to keep the Pound on a stronger footing for long. While this suggests that the Bank of England (BoE) could raise interest rates as soon as November the latest commentary from policymakers proved somewhat discouraging. Markets were inclined to take a more bearish view of Sterling after BoE Governor Mark Carney offered a fresh warning over the risks of a no-deal Brexit, with the prospect of any meaningful progress still distinctly lacking.
As UK wage growth is still expected to have lagged significantly behind inflation in the three months to August GBP exchange rates may struggle to find any support this afternoon.
Euro
Markets were not impressed to find that the German ZEW economic sentiment survey had only edged up from 17.0 to 17.6 in October. This indicates that optimism within the Eurozone’s powerhouse economy is not quite as prevalent as investors would hope. Worries over Catalonia also continued to weigh on the Euro on Tuesday, with jitters increasing in response to news that Spanish authorities had detained two Catalan separatists. As the situation does not look to be any closer to a peaceful resolution the appeal of the single currency remains limited.
Commentary from European Central Bank (ECB) President Mario Draghi are not likely to improve the mood towards the Euro, particularly if he maintains a relatively dovish view on monetary policy.
US Dollar
Domestic data continued to impress overnight, with September’s import price index bettering expectations and industrial production showing a solid rebound on the month. Naturally this added to the more optimistic view of the US economy, giving investors fresh reason to buy into the US Dollar. With the negative economic impact of the recent hurricanes appearing relatively limited the Federal Reserve still looks on course to raise interest rates again before the end of the year, keeping the US Dollar supported.
Tonight’s US housing starts and building permits data is expected to undermine the ‘Greenback’, however, as both are forecast to show a contraction on the month.
Canadian Dollar
Confidence in the ‘Loonie’ remained muted as market worries over the future of the North American Free Trade Agreement (NAFTA) persisted. The uncertainty generated by the renegotiation of the trade deal is likely to limit any Bank of Canada (BOC) hawkishness in the near term, diminishing the odds of any further interest rate hikes. This offset the continued bullishness of oil prices, leaving CAD exchange rates to trend lower.
As Canadian manufacturing shipments are forecast to have declined further on the month the Canadian Dollar is unlikely to see any particular recovery in the near term.
New Zealand Dollar
Another weak showing from the Global Dairy Trade auction put pressure on the New Zealand Dollar, indicating continued softness in the dairy market. This drove the ‘Kiwi’ back down even after a stronger-than-expected uptick in inflation in the third quarter. Political concerns also weighed on the antipodean currency, with coalition talks still not showing any clear sign of resolution.
With no fresh New Zealand data scheduled for release today NZD exchange rates may struggle to find any particular traction.
Data Released
October 18th 09:30 AUD Westpac Leading Index (MoM) (SEP)
October 18th 18:10 EUR ECB President Draghi speaks in Frankfurt
October 18th 18:30 GBP Average Weekly Earnings (3M/YoY) (AUG) 2.1%
October 18th 22:30 CAD Manufacturing Shipments (MoM) (AUG) -0.3%
October 18th 22:30 USD Building Permits (MoM) (SEP) -2.9%