‘Aussie’ Benefits as Australian Inflation Data Betters Forecast
The fourth quarter Australian consumer price index data bettered forecasts yesterday, offering a boost to AUD exchange rates. As the annual inflation rate only eased from 1.9% to 1.8% this gave the Australian Dollar a modest boost against its rivals. Even though this is still below the Reserve Bank of Australia’s (RBA) 2% target investors are confident that inflationary pressure remains relatively steady.
If private sector credit growth shows no change on the year in December this could keep the Australian Dollar on a stronger footing against its rivals.
Renewed Brexit Uncertainty Dents Pound
After MPs voted in favour of reopening negotiations over the Irish border issue the mood towards the Pound soured. With the EU already opposed to renegotiating the withdrawal agreement this move provoked a fresh bout of market uncertainty over the future of the UK’s relationship with the EU. However, even though the odds of a no-deal Brexit rose this was not enough to prevent GBP exchange rates recovering some of their lost ground overnight.
Another deterioration in January’s GfK consumer confidence index may still prompt the Pound to return to a downtrend this morning.
Contraction in German Inflation Weighs on Euro
German inflation contracted -0.8% on the month in January, leaving the Euro on a weaker footing across the board. The headline annual consumer price index also disappointed, falling short of forecast to ease from 1.7% to 1.4%. All in all, this suggests that inflationary pressure within the Eurozone’s powerhouse economy is diminishing, giving the European Central Bank (ECB) greater incentive to leave interest rates on hold for longer.
Confirmation that the Eurozone economy lost further momentum in the final quarter of 2018 could extend the Euro’s losses further tonight.
US-China Trade Tensions Limit US Dollar Strength
Demand for the US Dollar remained generally muted ahead of the Federal Open Market Committee’s (FOMC) first policy meeting of 2019. Worries over the latest round of US-China trade talks also helped to limit the momentum of USD exchange rates last night. With the chances of an end to the trade spat looking slim general worries over the outlook of the US economy persisted. A solid ADP employment change report offered some encouragement to the US Dollar, however.
A steady showing from December’s personal consumption expenditure core could give USD exchange rates a boost, even if inflation remains below the Fed’s 2% target.
Weaker US Oil Production Boosts Canadian Dollar
A general improvement in market risk appetite helped to shore up the Canadian Dollar overnight as investors bet on the prospect of a less hawkish Federal Reserve. The resilience of the oil market also supported CAD exchange rates, with Brent crude continuing to trend comfortably above the US$60 per barrel mark. As US oil inventories saw a smaller increase than forecast on the week this gave the Canadian Dollar a boost, even though global oversupply worries remain.
With forecasts pointing towards a slowdown in November’s gross domestic product, however, demand for the Canadian Dollar could weaken tonight.
Risk Appetite Fails to Support New Zealand Dollar
Confidence in the New Zealand Dollar proved limited yesterday in the absence of any fresh domestic data. Although other commodity-correlated currencies saw a solid performance against their rivals, driven by improved risk appetite, NZD exchange rates struggled to capitalise on this. As worries over the outlook of the New Zealand economy remain the upside potential of the New Zealand Dollar was still muted.
If the Chinese manufacturing PMI falls further into contraction territory this may drag NZD exchange rates down.
January 31st 11:01 GBP GfK Consumer Confidence Index (JAN) -15
January 31st 11:30 AUD Private Sector Credit (YoY) (DEC) 4.4%
January 31st 21:00 EUR Eurozone Gross Domestic Product (YoY) (4Q A) 1.2%
February 1st 00:30 CAD Gross Domestic Product (YoY) (NOV) 1.6%
February 1st 00:30 USD Personal Consumption Expenditure Core (YoY) (DEC) 1.9%