Euro Under Pressure as Eurozone Inflation Rate Unexpectedly Downgraded

Australian Dollar Softens in Anticipation of RBA Minutes

The mood towards the Australian Dollar soured yesterday as market risk appetite remained limited at the start of the week. In the absence of any fresh domestic data AUD exchange rates struggled to hold onto any particular traction as worries over the health of the global economy picked up. With investors also bracing for the release of the Reserve Bank of Australia’s (RBA) December meeting minutes there was nothing to stop the Australian Dollar weakening.

If the RBA signals a tilt towards dovishness in its minutes this could see AUD exchange rates lose further ground this morning.

Underwhelming House Price Index Limits Pound Appeal

December’s Rightmove house price index saw another contraction on the month as prices fell -1.5%. This limited the appeal of the Pound yesterday as this weaker showing points towards the persistent softness of the UK housing market, even though the yearly figure showed some improvement. With Theresa May continuing to struggle to shore up support for her panned Brexit proposal support for GBP exchange rates proved largely limited.

As markets brace for tomorrow’s UK consumer price index data the upside potential of the Pound is unlikely to improve.

Downward Revision to Eurozone Inflation Dents Euro

Confidence in the Euro deteriorated further after the finalised Eurozone consumer price index data for November saw a surprise downward revision. This left the headline inflation rate at just 1.9%, falling below the European Central Bank’s (ECB) 2% target and further diminishing the prospect of a 2019 interest rate hike. While there were signs of progress surrounding the controversial Italian budget this was not enough to shore up EUR exchange rates.

Another underwhelming performance from the German IFO business sentiment survey could put further pressure on the single currency today.

US Dollar Softens as Signs Point Towards Softening Manufacturing Sector

Weaker-than-expected Empire manufacturing index and NAHB housing market index results left USD exchange rates on the back foot overnight. Investors were discouraged to find that the manufacturing index had slumped from 23.3 to 10.9 in December, signalling further weakness within the sector. With the US economy showing fresh signs of losing momentum the case for Federal Reserve hawkishness continued to diminish, to the detriment of the US Dollar.

As forecasts point towards a significant slowdown in November’s housing starts USD exchange rates could lose further ground tonight.

Housing Downturn Weighs on Canadian Dollar Exchange Rates

Another sharp contraction in Canadian existing home sales left CAD exchange rates lacking in support yesterday. As sales fell -2.3% on the month confidence in the health of the wider Canadian economy continued to diminish, dragging the Canadian Dollar down. With Brent crude range-bound around US$60 per barrel investors saw no reason to favour the risk-sensitive Canadian Dollar at this stage.

However, an uptick in October’s manufacturing sales could offer CAD exchange rates a boost in the near term.

Solid Services PMI Limits New Zealand Dollar Vulnerability

The New Zealand services PMI eased from 55.4 to 53.5 in November, limiting confidence in the outlook of the economy. However, as the index remained firmly within expansion territory the negative impact on NZD exchange rates proved limited. Although market risk appetite proved limited NZD exchange rates also capitalised on the weakness of rivals such as the US Dollar.

Any weakness in the ANZ activity outlook index, though, could see the New Zealand Dollar slump sharply today.

Data Released

December 18th 11:00 NZD ANZ Activity Outlook (DEC)
December 18th 11:30 AUD Reserve Bank of Australia Meeting Minutes (DEC)
December 18th 20:00 EUR German IFO Business Climate (DEC) 101.7
December 19th 00:30 CAD Manufacturing Sales (MoM) (OCT) 0.5%
December 19th 00:30 USD Housing Starts (MoM) (NOV) 0.2%

Louisa Heath

louisa.heath@torfx.com


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