Australian Dollar
As the Chinese consumer price index ticked up from 1.7% to 1.8% on the year in December this encouraged markets to remain in a more risk-positive mood on Wednesday. The Australian Dollar capitalised on this latest sign of strength from the world’s second largest economy, with AUD exchange rates particularly exposed to developments in China. With the latest comments from Federal Reserve policymakers painting a more divided picture of the central bank, meanwhile, the ‘Aussie’ capitalised on a softer US Dollar.
With Australian retail sales thought to have lost some momentum in November the Australian Dollar may see some downside pressure today.
Sterling
It was a volatile day of trade for the Pound, with the latest raft of UK data proving rather mixed in nature. Although November’s industrial and manufacturing production figures bettered expectations these were counterbalanced by an unexpectedly sharp widening of the visible trade balance. All in all, this highlighted the UK economy’s continued vulnerability to any wider deterioration in trade conditions. While the NIESR gross domestic product estimate for the fourth quarter of 2017 proved more optimistic in nature this failed to particularly shore up GBP exchange rates overnight.
Sterling may struggle to find a rallying point in the near term, though, unless the Bank of England (BoE) Credit Conditions and Bank Liability surveys prove positive in tone.
Euro
Speculation over Italy’s future put some pressure on the Euro, with markets nervous over the potential for another populist upset in the upcoming general election. However, as key opposition figures, including the head of the 5-Star Movement, commented that the country should remain part of the Eurozone these jitters were soon soothed. Even so, the single currency struggled to find traction against higher-yielding rivals such as the Australian Dollar and New Zealand Dollar.
With forecasts pointing towards a strong showing from the 2017 German gross domestic product figure the Euro could make fresh gains this evening.
US Dollar
Opinion amongst Federal Reserve policymakers proved less unified than markets had hoped, with some calling for a slower pace of monetary tightening over the coming months. This knocked some of the wind out of the US Dollar’s sails, reversing much of yesterday’s bullishness. December’s US import and export price index data did not offer any support to USD exchange rates either, with price pressures found to be much weaker than forecast.
Ahead of tomorrow’s monthly budget statement the US Dollar is likely to remain under some degree of pressure, especially if domestic political concerns start to flare up.
Canadian Dollar
Demand for the Canadian Dollar weakened sharply in the wake of a surprisingly sharp contraction in building permits. With the Canadian housing market continuing to demonstrate signs of weakness the appeal of the ‘Loonie’ naturally diminished, even though the odds of an imminent Bank of Canada (BOC) interest rate hike remain high. Even though Brent crude pushed closer to the US$70 per barrel mark this was not enough to prevent CAD exchange rates slumping.
Another poor showing from tonight’s new housing price index is likely to compound the bearishness of the Canadian Dollar further.
New Zealand Dollar
The New Zealand Dollar continued to benefit from a price correction yesterday, also finding strength on the back of the positive Chinese inflation data. Even with domestic data still absent from the calendar NZD exchange rates rallied strongly, still shaking off the impact of weeks of political jitters and soft sentiment.
So long as market risk appetite persists the New Zealand Dollar is likely to make further gains today.
Data Released
January 11th 10:30 AUD Retail Sales (MoM) (NOV) 0.4%
January 11th 19:00 EUR German Gross Domestic Product (YoY) (2017) 2.4%
January 11th 19:30 GBP Bank of England Credit Conditions and Bank Liabilities Surveys
January 11th 22:30 EUR European Central Bank Meeting Minutes
January 11th 22:30 CAD New Housing Price Index (YoY) (NOV)
January 12th 05:00 USD Monthly Budget Statement (DEC) -46 billion