Australian Dollar Slumps versus Majors as Global Markets Shun Risk Assets
Positive US economic data and fears that US trade tariffs against China are incoming weakened the Australian Dollar at the end of the week. Even a hawkish speech from Reserve Bank of Australia (RBA) official Guy Debelle didn’t improve the mood much. Debelle commented that markets were underestimating the risks of higher interest rates across the globe, which could be a hint that he sees Australian borrowing costs rising soon.
AUD/GBP Exchange Rate Tumbles as Markets Ignore BoE Risky Credit Warning
The AUD/GBP exchange rate tumbled on Friday. GBP proved largely immune to a warning from the Bank of England (BoE) regarding a rise in risky lending. According to Threadneedle Street, around a fifth of all new mortgage lending comes very close to the 4.5 times income limit imposed to prevent households from overstretching themselves when seeking finance.
The Pound could weaken today as markets focus on the approach of tomorrow’s February UK consumer price index figures, which are expected to show the pace of inflation has slowed.
Disappointing Eurozone Inflation Data Fails to Prevent Strong AUD/EUR Losses
The Australian Dollar dropped against the Euro on Friday, despite a surprise downwards revision to early estimates for Eurozone consumer price growth during February. While the finalised core inflation rate reading held steady at 1% as expected, the overall inflation rate was cut from 1.3% to 1.1%. Meanwhile wage growth for the fourth quarter of 2017 slightly undershot forecasts, rising from 1.6% to 1.7% instead of meeting the consensus expectations of 1.8%. Altogether the day’s data did nothing to improve the inflation outlook.
Eurozone trade balance and construction output figures for January are set for release today.
AUD/USD -0.8% Lower after US Confidence Data
The Australian Dollar fell against the US Dollar after the latest University of Michigan sentiment index showed a strong and unexpected uptick in household confidence. The preliminary index for March, released at midnight on Saturday, was expected to weaken from February’s reading of 99.7 to 99.3, but instead climbed to 102. The current conditions sub-index climbed from 114.9 to 122.8. Industrial and manufacturing production for February were also positive compared to expectations, expanding 1.1% instead of 0.3% and 1.2% instead of 0.4% respectively.
In another positive sign, capacity utilisation rose further than expected to 78.1%, pointing to tightness in the labour market; a sign of strength the Federal Reserve will definitely appreciate.
Concerns of Gloomy Canadian Monetary Policy Outlook Fail to Prevent AUD/CAD Decline
Markets may have been concerned by the soft outlook for Canadian monetary policy on Friday, but this didn’t stop the AUD/CAD exchange rate losing over half a percent.
Comments from Bank of Canada (BOC) Governor Stephen Poloz earlier in the week about the potential for the Canadian economy to generate growth without further inflation were still haunting the ‘Loonie’, with markets also fearing that policymakers would wait until there was greater clarity regarding the Canada-US trade relationship before proceeding with monetary policy adjustments. Yet it was the Australian Dollar that weakened as the weekend approached.
AUD/NZD Exchange Rate Floats around Opening Levels
Like the Australian Dollar, the New Zealand Dollar was weakened on Friday by a solid and unexpected rise in US consumer sentiment and fears that Donald Trump may be about to slap more tariffs upon Chinese imports. Trump’s US trade ambassador earlier in the week gave him a plan to tax US$30 billion worth of Chinese imports per year, so markets are now holding their breath as they wait to see whether Trump will follow through and implement the recommendations. This allowed the AUD/NZD exchange rate to hold opening levels.
Data Released
10:01 GBP Rightmove House Prices (YoY) (MAR)
20:00 EUR Eurozone Trade Balance (euros) (JAN)