Australian Dollar
Although the NAB business confidence index showed a modest uptick from 10 to 12 in January this failed to shore up AUD exchange rates for long. In part this was due to the uneven nature of the improvement in business conditions, with consumer sectors continuing to trail behind the construction and mining sectors. With signs also pointing towards slower wage growth and a moderation in the recent pace of labour market tightening investors soon found reason to sell out of the Australian Dollar once again.
Building anticipation for tomorrow’s raft of Australian labour market data is likely to weigh on the Australian Dollar over the course of the day.
Sterling
In a surprise development the headline UK consumer price index held steady at 3.0% in January, defying forecasts of a slight dip to 2.9%. Naturally this encouraged fresh bets that the Bank of England (BoE) will raise interest rates sooner rather than later, with inflation still some way above the 2% target. While the Pound surged higher across the board in the immediate wake of the data, however, it struggled to maintain a particularly bullish footing against some of its stronger rivals.
As investor jitters over Brexit remain Sterling may come under renewed pressure today, unless there are signs of greater clarity regarding the UK government’s approach to the issue.
Euro
With global stock markets continuing their recovery and the US Dollar under pressure the Euro found fresh support during Tuesday’s European session. The single currency’s negative correlation to the US Dollar has continued to benefit EUR exchange rates in general, with markets disconcerted by the latest developments regarding the US budget. Even in the absence of any major domestic data the Euro was thus able to make solid gains against its risk-sensitive rivals.
If the fourth quarter Eurozone and German gross domestic product figures indicate that the currency union ended 2017 with strong growth momentum the Euro may extend its gains further.
US Dollar
Investors reacted negatively to the unveiling of the 2019 fiscal year budget, with the proposals capable of pushing the deficit up to 1 trillion next year. While Congress is unlikely to enact the plan as it is this prospect was enough to drive the US Dollar down markedly. The plan suggests that the Trump administration has no intention of narrowing the high US deficit, something which spooked investors and could force the Federal Reserve to tighten monetary policy even more aggressively.
Any weakening of the US consumer price index could weigh heavily on USD exchange rates overnight, even though this is not the Fed’s preferred measure of inflation.
Canadian Dollar
As Brent crude continued to push lower, edging towards the US$62 per barrel mark, demand for the Canadian Dollar remained distinctly limited. The International Energy Agency (IEA) added to the bearish mood as it noted that US production may even rise to equal the rise in global demand in 2018. With another global oversupply glut looking possible in the coming months the appeal of the commodity-correlated Canadian Dollar naturally diminished.
Unless there are signs of an easing in US crude output in the near future CAD exchange rates look set to remain under pressure.
New Zealand Dollar
A recovery in market risk appetite, driven by a weaker US Dollar, helped to shore up NZD exchange rates yesterday. Although confidence in the underlying health of the New Zealand economy remains rather weak at this juncture the mood towards the New Zealand Dollar nevertheless improved, benefitting from positive forces within the wider market.
The release of the latest Reserve Bank of New Zealand (RBNZ) 2-year inflation expectation report may offer the New Zealand Dollar further support today, providing that it points towards an increase in domestic inflationary pressure.
Data Released
February 14th 09:30 AUD Westpac Consumer Confidence (FEB)
February 14th 12:00 NZD Reserve Bank of New Zealand 2-Year Inflation Expectation (1Q)
February 14th 17:00 EUR German Gross Domestic Product n.s.a. (YoY) (4Q P) 2.2%
February 14th 20:00 EUR Eurozone Gross Domestic Product s.a. (YoY) (4Q P) 2.7%
February 14th 23:30 USD Consumer Price Index (YoY) (JAN) 1.9%