Pound Benefits as UK Mortgage Approvals Show First Growth in Fifteen Months

Risk Appetite Supports Australian Dollar

Confidence in the Australian Dollar picked up a little ahead of the weekend as stock market volatility showed signs of temporarily easing. The mixed nature of the latest US data also offered some support to AUD exchange rates, with the case for further Federal Reserve monetary tightening looking increasingly limited. Even so, support for the Australian Dollar remained relatively fragile.

If the Chinese manufacturing PMI fails to show an improvement on the month in December AUD exchange rates look vulnerable to additional downside pressure.

Pound Pushes Higher on Stronger Mortgage Approvals

As the latest UK mortgage approvals data bettered expectations this encouraged the Pound to return to a stronger footing on Friday. Investors were pleasantly surprised to find that approvals had risen 0.2% on the year, the first such increase since September 2017. However, signs still point towards weakness within the UK housing market heading into 2019 as worries over Brexit continue to weigh on the domestic economy.

Any developments relating to Brexit could easily provoke fresh volatility for GBP exchange rates this week.

Disappointing Dip in German Inflation Weighs on Euro

The mood towards the Euro soured in the wake of December’s German consumer price index data, which fell short of forecasts. In a disappointing development the headline annual inflation rate dipped from 2.3% to 1.7%, falling well below the European Central Bank’s (ECB) 2% target. This is likely to encourage policymakers to leave interest rates on hold for longer, with inflationary pressure across the Eurozone likely to reflect similar weakness.

With no fresh Eurozone data set for release today support for the single currency could prove limited.

Stronger Chicago PMI Not Enough to Boost US Dollar

As market risk appetite picked back up the US Dollar came under renewed pressure, lacking the support of safe-haven demand. Although December’s Chicago PMI proved stronger than forecast, clocking in at 65.4 rather than 60.2, this failed to shore up USD exchange rates ahead of the weekend. November’s pending home sales data was less positive in nature, meanwhile, as sales continued to contract on both the month and the year.

Tonight’s Dallas Fed manufacturing activity index may offer a solid rallying point to the US Dollar, provided the index shows an improvement on the month.

Canadian Dollar Fails to Benefit as Oil Prices Recover

While oil prices rebounded from their multi-month lows during Friday’s European session this was not enough to give the Canadian Dollar any significant boost. Even as market sentiment recovered Brent crude continued to trend below US$53 per barrel, owing to lingering worries over rising US production and the global oversupply glut. With global demand looking set to diminish in 2019 the upside potential of CAD exchange rates proved limited.

Unless the oil market sees a major recovery the Canadian Dollar could struggle to find much traction in the near future.

New Zealand Dollar Lacks Momentum Amid Thinner Trading

The New Zealand Dollar struggled to gain any particular momentum on Friday, even as the general sense of market risk appetite improved. As confidence in the outlook of the New Zealand economy remains generally lacking investors saw limited incentive to favour the ‘Kiwi’ over its rivals at this juncture.

As long as investors remain in a risk-positive mood, however, the downside potential of NZD exchange rates should prove limited.

Data Released

January 1st 02:30  USD Dallas Fed Manufacturing Activity Index (DEC) 16.9

Louisa Heath